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Money, inflation, and output under fiat and commodity standards

  • Arthur J. Rolnick
  • Warren E. Weber
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    This study examines the behavior of money, inflation, and output under fiat and commodity standards to better understand how changes in monetary policy affect economic activity. Using long-term historical data for 15 countries, the study finds that the growth rates of various monetary aggregates are more highly correlated with inflation and with each other under fiat standards than under commodity standards. Money growth, inflation, and output growth are also higher under fiat standards. In contrast, the study does not find that money growth is more highly correlated with output growth under one type of standard than under the other. This study was originally published in the Journal of Political Economy (December 1997, vol. 105, no. 6, pp. 1308_21). It is reprinted in the Federal Reserve Bank of Minneapolis Quarterly Review with the permission of the University of Chicago Press.

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    Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

    Volume (Year): (1998)
    Issue (Month): Spr ()
    Pages: 11-17

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    Handle: RePEc:fip:fedmqr:y:1998:i:spr:p:11-17:n:v.22no.2
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    1. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
    2. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August.
    3. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
    4. Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis.
    5. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
    6. Gerald P. Dwyer & R.W. Hafer, 1988. "Is money irrelevant?," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-17.
    7. Smith, Bruce D, 1985. "Some Colonial Evidence on Two Theories of Money: Maryland and the Carolinas," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1178-1211, December.
    8. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis.
    9. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-88, September.
    10. Anna J. Schwartz, 1987. "Secular Price Change in Historical Perspective," NBER Chapters, in: Money in Historical Perspective, pages 78-109 National Bureau of Economic Research, Inc.
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