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The Specie Standard as a Contingent Rule: Some Evidence for Core and Peripheral Countries, 1880-1990

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  • Michael D. Bordo
  • Anna J. Schwartz

Abstract

The specie standard that prevailed before 1914 was a contingent rule. Under the rule specie convertibiltity could be suspended in the event of a well understood, exogenously produced emergency, such as a war, on the understanding that after the emergency had safely passed convertibility would be restored at the original parity. Market agents would regard successful adherence as evidence of a credible commitment and would allow th authorities access to seignorage and bond finance at favorable terms. This paper surveys the history of the specie standard as a contingent rule for 21 countries divided into core and peripheral countries. As a comparison we also briedfly consider the Bretton Woods system and the recent managed floating regime. We then present evidence across four regimes (pre-1914 gold standard; interward gold standard; Bretton Woods; the subsequent managed exchange rate float) for the 21 countries on the stability of macro variables as well as on the demand shocks (reflecting policy actions specific to the regime) and supply shocks (reflecting shocks to the environment independence of the regime). These measures allow us to determine whether adherents to the rule consistently pursued different policy actions from nonadherents, and whether persistent adverse shocks to the environment may, for some countries, have precluded adherence to the rule.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4860.

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Date of creation: Sep 1994
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Publication status: published as Historical Perspectives on the Gold Standard, Barry Eichengreen and Jorge de Macedo, eds. Routledge, 1996. Currency Convertibility: The Gold Standard and Beyond, J. Braga de Macedo, B. Eichengreen, J. Reis, eds., pp. 11-83 (New York: Routledge, 1996).
Handle: RePEc:nbr:nberwo:4860

Note: DAE ME
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Cited by:
  1. Larry Neal & Marc D. Weidenmier, 2001. "Crises in The Global Economy from Tulips to Today: Contagion and Consequences," Claremont Colleges Working Papers 2001-32, Claremont Colleges.
  2. Jagjit S. Chadha & Elisa Newby, 2013. "’Midas, transmuting all, into paper’: the Bank of England and the Banque de France during the Napoleonic Wars," Cambridge Working Papers in Economics 1330, Faculty of Economics, University of Cambridge.
  3. Jonathan David Ostry & Anne Marie Gulde & Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 95/121, International Monetary Fund.
  4. Peter Kugler & Beatrice Weder, 2005. "Why are Returns on Swiss Franc Asset so Low?," Working papers 2005/08, Faculty of Business and Economics - University of Basel.
  5. Kugler, Peter & Weder, Beatrice, 2002. "The puzzle of the Swiss interest rate island : stylized facts and a new interpretation," HWWA Discussion Papers 168, Hamburg Institute of International Economics (HWWA).
  6. Newby, Elisa, 2012. "The suspension of the gold standard as sustainable monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1498-1519.
  7. Ron Alquist & Ben Chabot, 2010. "Did adhering to the gold standard reduce the cost of capital?," Working Paper Series WP-2010-13, Federal Reserve Bank of Chicago.

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