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A Model of the Bimetallic System

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  • Stefan E. Oppers

Abstract

This paper formalizes Irving Fisher’s century-old model of bimetallism and adds the important “disequilibrium” dynamics to deal with the long periods during which bimetallic countries were on effective monometallic standards. It resolves a long standing puzzle in the bimetallic literature regarding the remarkable stability of the gold/silver price ratio in the nineteenth century by modeling the bimetallic mint ratio as a regulating barrier to the gold/silver price ratio. It thus provides a clean-cut example of a target-zone model that—in contrast to other such models in the literature—exhibits the main predicted nonlinearities in the data. This is a Paper on Policy Analysis and Assessment and the author(s) would welcome any comments on the present text. Citations should refer to a Paper on Policy Analysis and Assessment of the International Monetary Fund, mentioning the author(s) and the date of issuance. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/144.

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Length: 30
Date of creation: 01 Dec 1995
Date of revision:
Handle: RePEc:imf:imfwpa:95/144

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  1. Robert P. Flood & Andrew K. Rose & Donald J. Mathieson, 1990. "An Empirical Exploration of Exchange Rate Target-Zones," NBER Working Papers 3543, National Bureau of Economic Research, Inc.
  2. Flood, Robert P & Garber, Peter M, 1983. "A Model of Stochastic Process Switching," Econometrica, Econometric Society, Econometric Society, vol. 51(3), pages 537-51, May.
  3. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
  4. Rolnick, Arthur J & Weber, Warren E, 1986. "Gresham's Law or Gresham's Fallacy?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 185-99, February.
  5. Miller, M. & Weller, P., 1988. "Solving Stochastic Saddlepoint Systems: A Qualitative Treatment With Economic Applications," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 309, University of Warwick, Department of Economics.
  6. Froot, Kenneth & Obstfeld, Maurice, 1991. "Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 522, C.E.P.R. Discussion Papers.
  7. Lars E. O. Svensson, 1992. "An Interpretation of Recent Research on Exchange Rate Target Zones," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(4), pages 119-144, Fall.
  8. Arthur J. Rolnick & Warren E. Weber, 1986. "Gresham's law or Gresham's fallacy?," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 17-24.
  9. Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(4), pages 85-104, Fall.
  10. Paul Krugman & Julio Rotemberg, 1990. "Target Zones with Limited Reserves," NBER Working Papers 3418, National Bureau of Economic Research, Inc.
  11. Robert L. Greenfield, 1992. "Gresham's Law Regained," NBER Historical Working Papers, National Bureau of Economic Research, Inc 0035, National Bureau of Economic Research, Inc.
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Cited by:
  1. Oppers, Stefan Erik, 1996. "Was the worldwide shift to gold inevitable? An analysis of the end of bimetallism," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(1), pages 143-162, February.
  2. Flandreau, Marc & Oosterlinck, Kim, 2012. "Was the emergence of the international gold standard expected? Evidence from Indian Government securities," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(7), pages 649-669.
  3. Diebolt, Claude & Parent, Antoine, 2008. "Bimetallism: The "rules of the game"," Explorations in Economic History, Elsevier, Elsevier, vol. 45(3), pages 288-302, July.
  4. Francois R. Velde & Warren E. Weber, 1998. "A model of bimetallism," Working Paper Series, Federal Reserve Bank of Chicago WP-98-8, Federal Reserve Bank of Chicago.
  5. Flandreau, Marc R, 2002. ""Water Seeks a Level": Modeling Bimetallic Exchange Rates and the Bimetallic Band," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(2), pages 491-519, May.

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