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A Viable Gold Standard Requires Flexible Monetary and Fiscal Policy

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  • Buiter, Willem H

Abstract

This paper studies an idealized gold standard in a two-country setting. Without flexible national domestic credit expansion policies, the standard collapses in finite time through a speculative attack against one of the currencies. When a responsive domestic credit expansion policy eliminates the danger of a run on a country's reserves, the shocks disturbing the system, which previously were reflected in reserve flows, now show up in the public debt. Unless the primary government deficit is permitted to respond, the debt is likely to rise (or fall) to unsustainable levels. Viability can be achieved only through the active use of monetary and fiscal policy. Copyright 1989 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 56 (1989)
Issue (Month): 1 (January)
Pages: 101-17

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Handle: RePEc:bla:restud:v:56:y:1989:i:1:p:101-17

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Cited by:
  1. Dumas, B. & Svensson, L.E.O., 1994. "How Long Do Unilateral Target Zones Last?," DELTA Working Papers 94-06, DELTA (Ecole normale supérieure).
  2. Buiter, Willem H & Pesenti, Paolo, 1990. "Rational Speculative Bubbles in an Exchange Rate Target Zone," CEPR Discussion Papers 479, C.E.P.R. Discussion Papers.
  3. Daniel, Betty C, 2001. "A Fiscal Theory of Currency Crises," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 969-88, November.
  4. Michael D. Bordo & Barry Eichengreen, 1998. "The Rise and Fall of a Barbarous Relic: The Role of Gold in the International Monetary SYstem," NBER Working Papers 6436, National Bureau of Economic Research, Inc.

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