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A Model of Bimetallism

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  • Francois R. Velde
  • Warren E. Weber

Abstract

Bimetallism has been the subject of considerable debate: Was it a viable monetary system? Was it desirable? In our model, the amounts of each metal are split between coined metal, satisfying a cash-in-advance constraint, and uncoined metal, yielding utility. The ratio of the monies in the cash-in-advance constraint is endogenous. Bimetallism is feasible: we find a continuum of steady states indexed by the constant exchange rate of the monies. Bimetallism is not desirable: among steady states, welfare under monometallism is higher than under any bimetallic equilibrium. Long-run trends in gold and silver production placed limits on the maintenance of bimetallism at any given ratio, but its sudden collapse in 1873 remains a puzzle.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 6 (December)
Pages: 1210-1234

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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1210-1234

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  1. Garber, Peter M, 1986. "Nominal Contracts in a Bimetallic Standard," American Economic Review, American Economic Association, vol. 76(5), pages 1012-30, December.
  2. Oppers, Stefan Erik, 2000. "A model of the bimetallic system," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 517-533, October.
  3. C. C. Patterson, 1972. "Silver Stocks and Losses in Ancient and Medieval Times," Economic History Review, Economic History Society, vol. 25(2), pages 205-233, 05.
  4. Thomas J. Sargent & Francois R. Velde, 1997. "The big problem of small change," Working Paper Series, Macroeconomic Issues WP-97-08, Federal Reserve Bank of Chicago.
  5. Angela Redish, 1995. "The persistence of bimetallism in nineteenth-century France," Economic History Review, Economic History Society, vol. 48(4), pages 717-736, November.
  6. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
  7. Friedman, Milton, 1990. "The Crime of 1873," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1159-94, December.
  8. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis.
  9. Chau-nan Chen, 1972. "Bimetallism: Theory and Controversy in Perspective," History of Political Economy, Duke University Press, vol. 4(1), pages 89-112, Spring.
  10. Oppers, S.E., 1994. "Was the Worldwide Shift to Gold Inevitable? An Analysis of the End pf Bimetalism," Working Papers 351, Research Seminar in International Economics, University of Michigan.
  11. Redish, Angela, 1990. "The Evolution of the Gold Standard in England," The Journal of Economic History, Cambridge University Press, vol. 50(04), pages 789-805, December.
  12. Flandreau, Marc, 1995. "An Essay on the Emergence of the International Gold Standard, 1870-80," CEPR Discussion Papers 1210, C.E.P.R. Discussion Papers.
  13. Dowd, Kevin, 1996. "The Analytics of Bimetallism," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(3), pages 281-97, September.
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Citations

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Cited by:
  1. Redish, Angela & Weber, Warren E., 2011. "Coin Sizes And Payments In Commodity Money Systems," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 62-82, April.
  2. Elisa Newby, 2009. " The Suspension of the Gold Standard as Sustainable Monetary Policy," CDMA Conference Paper Series 0907, Centre for Dynamic Macroeconomic Analysis.
  3. Stephen Quinn & William Roberds, 2005. "The big problem of large bills: the Bank of Amsterdam and the origins of central banking," Working Paper 2005-16, Federal Reserve Bank of Atlanta.
  4. Elisa Newby, 2007. "Macroeconomic Implications of Gold Reserve Policy of the Bank of England during the Eighteenth Century," CDMA Working Paper Series 200708, Centre for Dynamic Macroeconomic Analysis.
  5. Angela Redish & Warren E. Weber, 2011. "A model of commodity money with minting and melting," Staff Report 460, Federal Reserve Bank of Minneapolis.
  6. Antoine Martin, 2002. "Reconciling Bagehot with the Fed's response to Sept. 11," Research Working Paper RWP 02-10, Federal Reserve Bank of Kansas City.
  7. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
  8. Bojanic, Antonio N., 2011. "Final Years of the Silver Standard in Mexico: Evidence of Purchasing Power Parity with The United States," MPRA Paper 45535, University Library of Munich, Germany, revised 27 Jul 2011.
  9. Diebolt, Claude & Parent, Antoine, 2008. "Bimetallism: The "rules of the game"," Explorations in Economic History, Elsevier, vol. 45(3), pages 288-302, July.

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