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The suspension of the gold standard as sustainable monetary policy

  • Newby, Elisa

This paper models the gold standard as a state contingent commitment technology that is only feasible during peace. Monetary policy during war, when the gold convertibility rule is suspended, can still be credible, if the policymaker's plan is to resume the gold standard in the future. The DSGE model developed in this paper suggests that the resumption of the gold standard was a sustainable plan, which replaced the gold standard as a commitment technology and made monetary policy time consistent. Trigger strategies support the equilibrium: private agents retaliate if a policymaker defaults on its plan to resume the gold standard.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 10 ()
Pages: 1498-1519

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:10:p:1498-1519
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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