The classical gold standard has long been associated with long-run price stability. But short-run price variability led critics of the gold standard to propose reforms that look much like modern versions of price-path targeting. This paper uses a dynamic stochastic general equilibrium model to examine price dynamics under alternative policy regimes. In the model, an inflation target provides more short-run price stability than does the gold standard and, although it introduces a unit root into the price level, it leads to as much long-term price stability as does the gold standard for horizons shorter than 30 years. Relative to these regimes, Fisher's compensated dollar reduces price level and inflation uncertainty by an order of magnitude at all horizons.> The classical gold standard has long been associated with long-run price stability. But short-run price variability led critics of the gold standard to propose reforms that look much like modern versions of price-path targeting. This paper uses a dynamic stochastic general equilibrium model to examine price dynamics under alternative policy regimes. In the model, an inflation target provides more short-run price stability than does the gold standard and, although it introduces a unit root into the price level, it leads to as much long-term price stability as does the gold standard for horizons shorter than 30 years. Relative to these regimes, Fisher's compensated dollar reduces price level and inflation uncertainty by an order of magnitude at all horizons.
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number
2003-014.
References listed on IDEAS 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.:
Allan Meltzer & Saranna Robinson, 1989.
"Stability Under the Gold Standard in Practice,"
NBER Chapters,
in: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz, pages 163-202
National Bureau of Economic Research, Inc.
[Downloadable!]
Thomas J. Sargent & Neil Wallace, 1983.
"A model of commodity money,"
Staff Report
85, Federal Reserve Bank of Minneapolis.
[Downloadable!]
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