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International Reserves Crises, Monetary Integration and the Payments System during the International Gold Standard

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  • Paula Hernandez-Verme

    ()
    (Department of Economics and Finance, Universidad de Guanajuato)

Abstract

I model an international payments system with a financial center and periphery to reproduce various aspects of the International Gold Standard. This period was characterized by frequent crises associated with scarce stocks of reserves, high short-term interest rates with subsequent gold inflows and transmission of output contractions across countries. I find that a common international currency and no legal restrictions on exchange help the periphery share reserves with the financial center, improving the world’s welfare and mitigating output losses due to reserve crises. Also, the center has incentives for restrictive rediscounting while the periphery has motives for developing central banking.

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Bibliographic Info

Paper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EC200904.

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Length: 31 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:gua:wpaper:ec200904

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Keywords: International Gold Standard; International payments systems; International reserve crises; Monetary integration;

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  1. Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187.
  2. Edward J. Green, 1996. "Money and Debt in the Structure of Payments," Macroeconomics 9609002, EconWPA, revised 09 Sep 1996.
  3. Michael D. Bordo & Anna J. Schwartz, 1984. "A Retrospective on the Classical Gold Standard, 1821-1931," NBER Books, National Bureau of Economic Research, Inc, number bord84-1, October.
  4. David A. Martin, 1968. "Bimetallism in the United States before 1850," Journal of Political Economy, University of Chicago Press, vol. 76, pages 428.
  5. Martin, David A., 1973. "1853: The End of Bimetallism in the United States," The Journal of Economic History, Cambridge University Press, vol. 33(04), pages 825-844, December.
  6. Freeman, Scott, 1996. "Clearinghouse banks and banknote over-issue," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 101-115, August.
  7. Scott Freeman, 2002. "Payments and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 602-617, July.
  8. Fujiki, Hiroshi, 2003. "A model of the Federal Reserve Act under the international gold standard system," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1333-1350, September.
  9. 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.
  10. Wallace E. Huffman & James R. Lothian, 1984. "The Gold Standard and the Transmission of Business Cycles, 1833-1932," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 455-512 National Bureau of Economic Research, Inc.
  11. Freeman, Scott, 1999. "Rediscounting under aggregate risk," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 197-216, February.
  12. Michael D. Bordo, 1984. "The Gold Standard: The Traditional Approach," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 23-120 National Bureau of Economic Research, Inc.
  13. Timberlake, Richard H., 1961. "The Specie Standard and Central Banking in the United States Before 1860," The Journal of Economic History, Cambridge University Press, vol. 21(03), pages 318-341, September.
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