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Money, inflation, and output under fiat and commodity standards

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  • Arthur J. Rolnick
  • Warren E. Weber
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    Abstract

    This study examines the behavior of money, inflation, and output under fiat and commodity standards to better understand how changes in monetary policy affect economic activity. Using long-term historical data for 15 countries, the study finds that the growth rates of various monetary aggregates are more highly correlated with inflation and with each other under fiat standards than under commodity standards. Money growth, inflation, and output growth are also higher under fiat standards. In contrast, the study does not find that money growth is more highly correlated with output growth under one type of standard than under the other. This study was originally published in the Journal of Political Economy (December 1997, vol. 105, no. 6, pp. 1308_21). It is reprinted in the Federal Reserve Bank of Minneapolis Quarterly Review with the permission of the University of Chicago Press.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

    Volume (Year): (1998)
    Issue (Month): Spr ()
    Pages: 11-17

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    Handle: RePEc:fip:fedmqr:y:1998:i:spr:p:11-17:n:v.22no.2

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    Related research

    Keywords: Money theory;

    References

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    1. Schwartz, Anna J, 1973. "Secular Price Change in Historical Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 243-69, Part II F.
    2. David K. Backus & Patrick J. Kehoe, 1991. "International evidence on the historical properties of business cycles," Staff Report 145, Federal Reserve Bank of Minneapolis.
    3. Smith, Bruce D, 1985. "Some Colonial Evidence on Two Theories of Money: Maryland and the Carolinas," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1178-1211, December.
    4. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
    5. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August.
    6. Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187.
    7. Gerald P. Dwyer & R.W. Hafer, 1988. "Is money irrelevant?," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-17.
    8. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
    9. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
    10. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
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    Cited by:
    1. Francois R. Velde & Marcelo Veracierto, 2000. "Dollarization in Argentina," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 24-37.
    2. Elisa Newby, 2007. "The Suspension of Cash Payments as a Monetary Regime," CDMA Working Paper Series 200707, Centre for Dynamic Macroeconomic Analysis.

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