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The Gibson paradox: Evidence from China

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  • Cheng, Hao
  • Kesselring, Randall G.
  • Brown, Christopher R.
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    Abstract

    Recent literature has advanced the view that the Gibson paradox, or the positive correlation of the price level with nominal interest rates, is nearly always a gold standard phenomenon. We argue that the Gibson correlation is more accurately classified as a statistical artifact of commodity money systems, with the gold standard merely representing one such system. Using new evidence from Chinese monetary history, this article gives evidence that the Gibson paradox appeared during China's silver-cored metallic standard era. Estimates obtained from recursive ordinary least squares specifications and vector auto-regressions performed, using the Shanghai Yinchai Rate and the Chinese Wholesale Price Index, confirm a Gibson correlation for China during the period 1873–1924.

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    Bibliographic Info

    Article provided by Elsevier in its journal China Economic Review.

    Volume (Year): 27 (2013)
    Issue (Month): C ()
    Pages: 82-93

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    Handle: RePEc:eee:chieco:v:27:y:2013:i:c:p:82-93

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    Web page: http://www.elsevier.com/locate/chieco

    Related research

    Keywords: Gibson paradox; Commodity money; Gold standard; Recursive OLS; Vector autoregression;

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    References

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    1. Lee, Chi-Wen Jevons & Petruzzi, Christopher R, 1986. "The Gibson Paradox and the Monetary Standard," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 189-96, May.
    2. Chen, Chung & Lee, Chi-Wen Jevons, 1990. "A VARMA Test on the Gibson Paradox," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 96-107, February.
    3. Robert B. Barsky & Lawrence H. Summers, 1985. "Gibson's Paradox and the Gold Standard," NBER Working Papers 1680, National Bureau of Economic Research, Inc.
    4. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
    5. Dwyer, Gerald P, Jr, 1984. "The Gibson Paradox: A Cross-Country Analysis," Economica, London School of Economics and Political Science, vol. 51(202), pages 109-27, May.
    6. Paul Evans & Xiaojun Wang, 2008. "A Tale of Two Effects," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 147-157, February.
    7. Benjamin Klein, 1975. "Our New Monetary Standard: The Measurement and Effects of Price Uncertainty," UCLA Economics Working Papers 062, UCLA Department of Economics.
    8. Ibrahim, I B & Williams, Raburn M, 1978. "The Fisher Relationship under Different Monetary Standards: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(3), pages 363-70, August.
    9. Kevin Dowd & Barry Harrison, 2000. "The Gibson paradox and the Gold Standard: evidence from the United Kingdom, 1821-1913," Applied Economics Letters, Taylor & Francis Journals, vol. 7(11), pages 711-713.
    10. Terence C. Mills, 2008. "Exploring historical economic relationships: two and a half centuries of British interest rates and inflation," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 2(3), pages 213-228, October.
    11. Klein, Benjamin, 1975. "Our New Monetary Standard: The Measurement and Effects of Price Uncertainty, 1880-1973," Economic Inquiry, Western Economic Association International, vol. 13(4), pages 461-84, December.
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