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

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Author Info
Barsky, Robert B
De Long, J Bradford

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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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Publisher 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. 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. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jakob B. Madsen, 2004. "The Equity Premium Puzzle and the Ex Post Bias," FRU Working Papers 2004/01, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
  2. Jakob B. Madsen, 2003. "The Equity Risk Premium and the Required Share Returns in a Tobin’s q Model," EPRU Working Paper Series 03-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  3. J. Bradford De Long, 1996. "America's Only Peacetime Inflation: The 1970s," NBER Historical Working Papers 0084, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Paul Evans & Xiaojun Wang, 2005. "A Tale of Two Effects," Working Papers 200506, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
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  5. 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. [Downloadable!]
  6. Robert B. Barsky & J. Bradford De Long, 1992. "Why Does the Stock Market Fluctuate?," NBER Working Papers 3995, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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