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The Suspension of the Gold Standard as Sustainable Monetary Policy

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Author Info
Newby, E.

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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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File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0856.pdf
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Publisher 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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Related research
Keywords: Gold standard; Time consistency; Monetary policy; Monetary regimes.;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
N13 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Europe: Pre-1913

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