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A new perspective on the Gold Standard: Inflation as a population phenomenon

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  • Joao Ricardo Faria

    (University of Texas at El Paso)

  • Peter McAdam

    (University of Surrey)

Abstract

The purpose of this paper is to contribute a new model of the Gold Standard, focusing on the interaction between resource scarcity and demographics. In a dynamic micro-founded model we find that: i) prices and equilibrium gold holdings increase with population (a scale effect), but decrease with the population growth rate; ii) that the Gold Standard implies deflation unless extraction resources outstrip population growth; iii) there is no optimal quantity of money. The predictions of the model are examined using a structural VAR. Our results also shed light on debates about the viability of a return to the Gold Standard, and, more generally, on the interaction between policy variables and scarce resources.

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Bibliographic Info

Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0412.

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Length: 25 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:sur:surrec:0412

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Web page: http://www.surrey.ac.uk/economics/
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Keywords: Gold Standard; Cagan-Keynes; Labor; Extraction; Scarcity; Inflation; Deflation; Population Dynamics;

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  1. Michael D. Bordo & Anna J. Schwartz, 1997. "Monetary Policy Regimes and Economic Performance: The Historical Record," NBER Working Papers 6201, National Bureau of Economic Research, Inc.
  2. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc.
  3. Yip, C.K. & Wang, P., 1989. "Alternative Approaches To Money And Growth," Papers 8-89-4, Pennsylvania State - Department of Economics.
  4. Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, vol. 89(353), pages 13-33, March.
  5. Kevin Dowd & Barry Harrison, 2000. "The Gibson paradox and the Gold Standard: evidence from the United Kingdom, 1821-1913," Applied Economics Letters, Taylor & Francis Journals, vol. 7(11), pages 711-713.
  6. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
  7. Robert B. Barsky & Lawrence H. Summers, 1985. "Gibson's Paradox and the Gold Standard," NBER Working Papers 1680, National Bureau of Economic Research, Inc.
  8. Philip Cagan, 1965. "Determinants and Effects of Changes in the Stock of Money, 1875-1960," NBER Books, National Bureau of Economic Research, Inc, number caga65-1, June.
  9. Miguel Sidrauski, 1967. "Inflation and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 75, pages 796.
  10. Paul A. Samuelson, 1968. "What Classical and Neoclassical Monetary Theory Really was," Canadian Journal of Economics, Canadian Economics Association, vol. 1(1), pages 1-15, February.
  11. Chappell, David & Dowd, Kevin, 1997. "A Simple Model of the Gold Standard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 94-105, February.
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  13. Allan H. Meltzer, 1983. "Monetary Reform in an Uncertain Environment," Cato Journal, Cato Journal, Cato Institute, vol. 3(1), pages 93-120, Spring.
  14. Gabriel Fagan & James R. Lothian & Paul D. Mcnelis, 2013. "Was The Gold Standard Really Destabilizing?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(2), pages 231-249, 03.
  15. Barry Eichengreen, 1992. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," NBER Books, National Bureau of Economic Research, Inc, number eich92-1, June.
  16. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  17. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  18. Kevin Dowd & Anthony A. Sampson, 1993. "A New Model of the Gold Standard," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 380-91, May.
  19. Miguel A. Le�n-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-57, September.
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