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

  • Faria, João Ricardo
  • McAdam, Peter

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; and 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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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 6 ()
Pages: 1358-1370

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:6:p:1358-1370
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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