DP 2017/5 - El-Shagi, M. / Zhang, L.: Trade Effects of Silver Price Fluctuations in 19th Century China - A Macro Approach

Makram El-Shagi, Lin Zhang

CFDS Discussion Paper 2017/5


We assess the role of silver price fluctuations on Chinese trade and GDP during the late Qing dynasty, when China still had a bimetallic monetary system where silver was mostly used for trade. Using a structural VAR with a newly proposed small sample bias correction and blockwise recursive identication, we identify the impact of silver price shocks on the Chinese economy from 1867 to 1910. We find that silver price changes have substantial impact on trade, but barely affect GDP. Our results can partly be applied to the analysis of the role of vehicle currencies in today's emerging economies.


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