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Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard

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  • Barsky, Robert B
  • De Long, J Bradford

Abstract

The authors examine interest and inflation rates from 1879 to 1913. Deflation prior to 1896 was followed by inflation. Average U.S. inflation was 3.1 percentage points higher in the years after 1896, yet nominal interest rates were no higher after 1896. This nonadjustment of nominal rates would be consistent with rational expectations if inflation was not forecastable, and indeed univariate tests show little sign of serial correlation. But gold production does forecast inflation. The relationship between mining and inflation was such that expected inflation should have risen 300 basis points between 1890 and 1910. They consider explanations of this failure to foresee the shift in inflation after 1896 and conclude that it is not persuasive evidence that investors ignored relevant information, but does suggest great uncertainty about the appropriate model for analyzing the economy. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 106 (1991)
Issue (Month): 3 (August)
Pages: 815-36

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Handle: RePEc:tpr:qjecon:v:106:y:1991:i:3:p:815-36

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  1. Robert B. Barsky, 1986. "The Fisher Hypothesis and the Forecastability and Persistence of Inflation," NBER Working Papers 1927, National Bureau of Economic Research, Inc.
  2. Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, vol. 89(353), pages 13-33, March.
  3. Barsky, Robert B & Summers, Lawrence H, 1988. "Gibson's Paradox and the Gold Standard," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 528-50, June.
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Cited by:
  1. Barsky, Robert B & De Long, J Bradford, 1993. "Why Does the Stock Market Fluctuate?," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 291-311, May.
  2. J. Bradford De Long, 1996. "America's Only Peacetime Inflation: The 1970s," NBER Historical Working Papers 0084, National Bureau of Economic Research, Inc.
  3. Hanes, Christopher & Rhode, Paul W., 2013. "Harvests and Financial Crises in Gold Standard America," The Journal of Economic History, Cambridge University Press, vol. 73(01), pages 201-246, March.
  4. 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.
  5. Luca Benati, 2006. "UK monetary regimes and macroeconomic stylised facts," Bank of England working papers 290, Bank of England.
  6. Perez, Stephen J. & Siegler, Mark V., 2006. "Agricultural and monetary shocks before the great depression: A graph-theoretic causal investigation," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 720-736, December.
  7. Spivak, Avia & Sussman, Nathan, 2008. "Inflation Targeting as the New Golden Standard," CEPR Discussion Papers 7001, C.E.P.R. Discussion Papers.
  8. Glenn D. Rudebusch & Eric T. Swanson, 2012. "The Bond Premium in a DSGE Model with Long-Run Real and Nominal Risks," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 105-43, January.
  9. Luis Catão & G. A. Mackenzie, 2006. "Perspectives on Low Global Interest Rates," IMF Working Papers 06/76, International Monetary Fund.
  10. J. Bradford De Long, . "America's Peacetime Inflation: The 1970s," J. Bradford De Long's Working Papers _104, University of California at Berkeley, Economics Department.
  11. Kandil, Magda, 2005. "Money, interest, and prices: Some international evidence," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 129-147.
  12. Mitchener, Kris James & Wandschneider, Kirsten, 2013. "Capital Controls and Recovery from the Financial Crisis of the 1930s," CAGE Online Working Paper Series 132, Competitive Advantage in the Global Economy (CAGE).

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  1. Lạm phát in Wikipedia (Vietnamese)
  2. Inflation in Wikipedia (English)
  3. User:Lawrencekhoo/notes in Wikipedia (English)

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