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The Suspension of the Gold Standard as Sustainable Monetary Policy

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  • Newby, E.

Abstract

This paper models the gold standard as a state contingent commitment rule that is only feasible during peace. It shows that monetary policy during war, when the gold convertibility rule is suspended, can still be credible, if the policy maker's plan is to resume the gold standard at the old par value in the future. The DGE model developed in this paper suggests that the resumption of the gold standard was a sustainable plan, which replaced the gold standard as a commitment rule and made monetrary policy time consistent. The equilibrium is supported by trigger strategies, where private agents retaliate if a policy maker defaults its policy plan to resume the gold standard rule.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0856.

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Date of creation: Nov 2008
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Handle: RePEc:cam:camdae:0856

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Keywords: Gold standard; Time consistency; Monetary policy; Monetary regimes.;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The gold standard as a commitment technology
    by Economic Logician in Economic Logic on 2009-12-16 03:45:00
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Cited by:
  1. Fregert, Klas, 2011. "Belling the cat: Eli F. Heckscher on the gold standard as a discipline device," Working Papers, Lund University, Department of Economics 2011:19, Lund University, Department of Economics.

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