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A Model of the Bimetallic System

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  • Oppers, S.E.

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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Suggested Citation

  • Oppers, S.E., 1993. "A Model of the Bimetallic System," Working Papers 332, Research Seminar in International Economics, University of Michigan.
    • Handle: RePEc:mie:wpaper:332
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    References listed on IDEAS

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    1. Miller, Marcus & Weller, Paul, 1988. "Solving Stochastic Saddlepoint Systems: A Qualitative Treatment With Economic Applications," Economic Research Papers 268343, University of Warwick - Department of Economics.
    2. Flood, Robert P & Garber, Peter M, 1983. "A Model of Stochastic Process Switching," Econometrica, Econometric Society, vol. 51(3), pages 537-551, May.
    3. Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 85-104, Fall.
    4. Paul Krugman & Julio Rotemberg, 1990. "Target Zones with Limited Reserves," NBER Working Papers 3418, National Bureau of Economic Research, Inc.
    5. Arthur J. Rolnick & Warren E. Weber, 1986. "Gresham's law or Gresham's fallacy?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 10(Win), pages 17-24.
    6. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 669-682.
    7. Flood, Robert P. & Rose, Andrew K. & Mathieson, Donald J., 1991. "An empirical exploration of exchange-rate target-zones," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 7-65, January.
    8. Froot, Kenneth A. & Obstfeld, Maurice, 1991. "Exchange-rate dynamics under stochastic regime shifts : A unified approach," Journal of International Economics, Elsevier, vol. 31(3-4), pages 203-229, November.
    9. Lars E. O. Svensson, 1992. "An Interpretation of Recent Research on Exchange Rate Target Zones," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 119-144, Fall.
    10. Krugman,Paul & Miller,Marcus (ed.), 1992. "Exchange Rate Targets and Currency Bands," Cambridge Books, Cambridge University Press, number 9780521435260.
    11. Robert L. Greenfield, 1992. "Gresham's Law Regained," NBER Historical Working Papers 0035, National Bureau of Economic Research, Inc.
    12. Paul Krugman & Marcus Miller, 1992. "Exchange Rate Targets and Currency Bands," NBER Books, National Bureau of Economic Research, Inc, number krug92-1, March.
    13. Redish, Angela, 1990. "The Evolution of the Gold Standard in England," The Journal of Economic History, Cambridge University Press, vol. 50(4), pages 789-805, December.
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    Cited by:

    1. Christopher M. Meissner, 2015. "The Limits of Bimetallism," NBER Working Papers 20852, National Bureau of Economic Research, Inc.
    2. Marc Flandreau & Kim Oosterlinck, 2011. "Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities," Working Papers 0005, European Historical Economics Society (EHES).
    3. Flandreau, Marc R, 2002. ""Water Seeks a Level": Modeling Bimetallic Exchange Rates and the Bimetallic Band," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 491-519, May.
    4. Matthias Morys, 2007. "The emergence of the Classical Gold Standard," Working Papers 7010, Economic History Society.
    5. Flandreau, Marc & Oosterlinck, Kim, 2012. "Was the emergence of the international gold standard expected? Evidence from Indian Government securities," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 649-669.
    6. Oppers, Stefan Erik, 1996. "Was the worldwide shift to gold inevitable? An analysis of the end of bimetallism," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 143-162, February.
    7. Francois R. Velde & Warren E. Weber, 2000. "A Model of Bimetallism," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1210-1234, December.
    8. Diebolt, Claude & Parent, Antoine, 2008. "Bimetallism: The "rules of the game"," Explorations in Economic History, Elsevier, vol. 45(3), pages 288-302, July.

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