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  • Kris James Mitchener
  • Marc D. Weidenmier

Abstract

There is a long-standing debate as to whether the Fisher effect operated during the classical gold standard period. We break new ground on this question by developing a market-based measure of general inflation expectations during the gold standard. Since the gold-silver price ratio was widely used to track inflation during the gold standard period, we are able to derive a measure of inflation expectations using the interest-rate differential between Austrian silver and gold perpetuity bonds with identical terms. Our empirical evidence suggests that inflation expectations exhibited significant persistence at the weekly, monthly, and annual frequencies. We also find that market participants updated long-run inflation expectations following short-run changes in the forward silver price of gold. The evidence suggests the operation of a long-run Fisher effect during the classical gold standard period.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15670.

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Date of creation: Jan 2010
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Handle: RePEc:nbr:nberwo:15670

Note: DAE ME
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  1. Mishkin, Frederic S., 1992. "Is the Fisher effect for real? : A reexamination of the relationship between inflation and interest rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 30(2), pages 195-215, November.
  2. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
  3. Richard H. Steckel & Richard A. Jensen, 1985. "Determinants of Slave and Crew Mortality in the Atlantic Slave Trade," NBER Working Papers 1540, National Bureau of Economic Research, Inc.
  4. Burdekin, R.C.K. & Siklos, P.L., 1997. "Exchange Rate Regimes and Shfts in Inflation Persistence: Does Nothing Else Matter?," Working Papers, Wilfrid Laurier University, Department of Economics 97-2, Wilfrid Laurier University, Department of Economics.
  5. Perez, Stephen J & Siegler, Mark V, 2003. " Inflationary Expectations and the Fisher Effect prior to World War I," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(6), pages 947-65, December.
  6. Harley, C. Knick, 1977. "The interest rate and prices in Britain, 1873-1913: A study of the Gibson Paradox," Explorations in Economic History, Elsevier, Elsevier, vol. 14(1), pages 69-89, January.
  7. Barsky, Robert B., 1987. "The Fisher hypothesis and the forecastability and persistence of inflation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 19(1), pages 3-24, January.
  8. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, Elsevier, vol. 32(4), pages 423-464, October.
  9. Michael D. Bordo & Christopher Meissner & Angela Redish, 2003. "How "Original Sin" was Overcome: The Evolution of External Debt Denominated in Domestic Currencies in the United States and the British Dominions," NBER Working Papers 9841, National Bureau of Economic Research, Inc.
  10. Taufiq Choudhry, 1996. "The Fisher effect and the gold standard: evidence from the USA," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 3(8), pages 553-555.
  11. Daniel K. Benjamin & Levis A. Kochin, 1984. "War, Prices, and Interest Rates: A Martial Solution to Gibson's Paradox," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 587-612 National Bureau of Economic Research, Inc.
  12. Shiller, Robert J & Siegel, Jeremy J, 1977. "The Gibson Paradox and Historical Movements in Real Interest Rates," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(5), pages 891-907, October.
  13. Refet S. G├╝rkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 425-436, March.
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Cited by:
  1. Alfred A. Haug, 2013. "On Real Interest Rate Persistence: The Role of Breaks," Working Papers, University of Otago, Department of Economics 1303, University of Otago, Department of Economics, revised Jan 2013.
  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.

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