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A model of the bimetallic system

  • Oppers, Stefan Erik

This paper formalizes Irving Fisher’s century-old model of bimetallism and adds the important “disequilibrium” dynamics to deal with the long periods during which bimetallic countries were on effective monometallic standards. It resolves a long standing puzzle in the bimetallic literature regarding the remarkable stability of the gold/silver price ratio in the nineteenth century by modeling the bimetallic mint ratio as a regulating barrier to the gold/silver price ratio. It thus provides a clean-cut example of a target-zone model that—in contrast to other such models in the literature—exhibits the main predicted nonlinearities in the data. This is a Paper on Policy Analysis and Assessment and the author(s) would welcome any comments on the present text. Citations should refer to a Paper on Policy Analysis and Assessment of the International Monetary Fund, mentioning the author(s) and the date of issuance. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 46 (2000)
Issue (Month): 2 (October)
Pages: 517-533

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Handle: RePEc:eee:moneco:v:46:y:2000:i:2:p:517-533
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  1. Kenneth A. Froot & Maurice Obstfeld, 1989. "Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach," NBER Working Papers 2835, National Bureau of Economic Research, Inc.
  2. Flood, Robert P & Garber, Peter M, 1983. "A Model of Stochastic Process Switching," Econometrica, Econometric Society, vol. 51(3), pages 537-51, May.
  3. Robert L. Greenfield, 1992. "Gresham's Law Regained," NBER Historical Working Papers 0035, National Bureau of Economic Research, Inc.
  4. Miller, Marcus & Weller, Paul, 1989. "Solving Stochastic Saddlepoint Systems: A Qualitative Treatment with Economic Applications," CEPR Discussion Papers 308, C.E.P.R. Discussion Papers.
  5. Krugman, Paul R, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 669-82, August.
  6. Arthur J. Rolnick & Warren E. Weber, 1983. "Gresham's law or Gresham's fallacy?," Staff Report 88, Federal Reserve Bank of Minneapolis.
  7. Donald J. Mathieson & Robert P. Flood & Andrew K. Rose, 1991. "An Empirical Exploration of Exchange Rate Target-Zones," IMF Working Papers 91/15, International Monetary Fund.
  8. Paul Krugman & Julio Rotemberg, 1990. "Target Zones with Limited Reserves," NBER Working Papers 3418, National Bureau of Economic Research, Inc.
  9. Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 85-104, Fall.
  10. Lars E. O. Svensson, 1992. "An Interpretation of Recent Research on Exchange Rate Target Zones," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 119-144, Fall.
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