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Gibson's Paradox and the Gold Standard

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  • Barsky, Robert B
  • Summers, Lawrence H

Abstract

This paper contributes a new element to the explanations of the Gibson paradox, the puzzling correlation between interest rates and the price level seen during the gold-standard peri od. A shock that raises the underlying real rate of return in the eco nomy reduces the equilibrium relative price of gold and, with the nom inal price of gold pegged by the authorities, must raise the price le vel. The mechanism involves the allocation of gold between monetary a nd nonmonetary uses. The authors' explanation helps to resolve some i mportant anomalies in previous work and is supported by empirical evi dence along a number of dimensions. Copyright 1988 by University of Chicago Press.

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Bibliographic Info

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

Volume (Year): 96 (1988)
Issue (Month): 3 (June)
Pages: 528-50

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Handle: RePEc:ucp:jpolec:v:96:y:1988:i:3:p:528-50

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  1. Barsky, Robert B., 1987. "The Fisher hypothesis and the forecastability and persistence of inflation," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 3-24, January.
  2. Michael D. Bordo, 1981. "The classical gold standard: some lessons for today," Review, Federal Reserve Bank of St. Louis, issue May, pages 2-17.
  3. Sargent, Thomas J, 1973. "Interest Rates and Prices in the Long Run: A Study of the Gibson Paradox," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 385-449, Part II F.
  4. Levhari, David & Pindyck, Robert S, 1981. "The Pricing of Durable Exhaustible Resources," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 365-77, August.
  5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  6. 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.
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