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Violations of the `Rules of the Game' and the Credibility of the Classical Gold Standard, 1880-1914

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  • Michael D. Bordo
  • Ronald MacDonald

Abstract

This paper examines the recently noted finding that the Classical gold standard represented a credible, well-behaved target zone system from the perspective of the well-documented failure of countries to play by the rules of the game in the classical period. In particular, we test an hypothesis of Svensson (1994) that a credible target zone can confer on a country a degree of independence in the operation of its monetary policy. We propose a number of ways of testing this proposition and implement them for a newly created monthly data base over the period 1880-1913. We demonstrate that the Classical gold standard worked in the way predicted by Svensson's model. This would seem to have an important bearing on the kind of institutional framework required for a modern day target zone (such as the Exchange Rate Mechanism of the European Monetary System) to function effectively and, in particular, to weather speculative attacks.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6115.

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Date of creation: Jul 1997
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Publication status: published as Bordo, Michael D. and Ronald MacDonald. "Interest Rate Interactions In The Classical Gold Standard, 1880-1914: Was There Any Monetary Independence?," Journal of Monetary Economics, 2005, v52(2,Mar), 307-327.
Handle: RePEc:nbr:nberwo:6115

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Cited by:
  1. Michael D. Bordo & Angela Redish, 2003. "Is Deflation depressing? Evidence from the Classical Gold Standard," NBER Working Papers 9520, National Bureau of Economic Research, Inc.
  2. Marc Flandreau & John Komlos, 2001. "How to Run a Target Zone? Age Old Lessons from an Austro-Hungarian Experiment," CESifo Working Paper Series 556, CESifo Group Munich.
  3. Ronald MacDonald, . "Currency issues and options for an independent Scotland," Working Papers 2013_12, Business School - Economics, University of Glasgow.
  4. repec:spo:wpecon:info:hdl:2441/323 is not listed on IDEAS

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