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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.

Suggested Citation

  • Faria, João Ricardo & McAdam, Peter, 2012. "A new perspective on the Gold Standard: Inflation as a population phenomenon," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1358-1370.
  • Handle: RePEc:eee:jimfin:v:31:y:2012:i:6:p:1358-1370 DOI: 10.1016/j.jimonfin.2012.02.005

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    References listed on IDEAS

    1. Miguel A. León-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 1330-1357, September.
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    6. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters,in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
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    12. 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, January.
    13. 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.
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    Cited by:

    1. Hoang, Thi Hong Van & Lahiani, Amine & Heller, David, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Economic Modelling, Elsevier, vol. 54(C), pages 54-66.
    2. repec:eee:jimfin:v:74:y:2017:i:c:p:53-68 is not listed on IDEAS

    More about this item


    Gold Standard; Cagan-Keynes; Labor; Extraction; Scarcity; Inflation; Deflation; Population dynamics;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money


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