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The restoration of the gold standard after the US Civil War: A volatility analysis

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  • Meulemann, Max
  • Uebele, Martin
  • Wilfling, Bernd

Abstract

This paper presents a new view on the gold price of greenbacks during and after the American Civil War by analyzing exchange-rate volatility rather than exchange-rate levels. Our empirical investigation detects regimes of high and low volatility alternating in a way that is consistent with a theoretical exchange-rate model in which the rate is primarily driven by investors’ expectations and not by fundamentals. We interpret these findings as evidence that monetary policy makers were surprisingly able to credibly announce the resumption to gold half a year before it actually took place on January 1, 1879. Given the intense political debate about the appropriate design of the United States’ financial system, this is a remarkable result. It indicates that the policy makers’ ability to anchor investors’ expectations is relevant to achieving asset-price stability as well as effectiveness of financial market regulation. The insights from this historical episode should therefore be of interest to policy makers and regulators combating financial crises like the ongoing current debt crises worldwide.

Suggested Citation

  • Meulemann, Max & Uebele, Martin & Wilfling, Bernd, 2014. "The restoration of the gold standard after the US Civil War: A volatility analysis," Journal of Financial Stability, Elsevier, vol. 12(C), pages 37-46.
    • Handle: RePEc:eee:finsta:v:12:y:2014:i:c:p:37-46
    DOI: 10.1016/j.jfs.2013.05.001
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    More about this item

    Keywords

    Monetary history; 19th century; USA; Greenback; Markov-switching GARCH models;
    All these keywords.

    JEL classification:

    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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