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On the behaviour of UK money, velocity, prices, and output in the gold standard period: 1871-1913

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  • Hamid Baghestani
  • Tracy Mott

Abstract

This article provides evidence in support of cointegration among the UK money supply, real output and the price level in the gold standard period, 1871-1913. The series respond to eliminate short run deviations from the long run equilibrium relation of the equation of exchange. Cointegration is also observed between the UK and US price levels, with the former also responding to eliminate short run deviations from the long run equilibrium relation among the two price levels. Our results for the components of the quantity equation support arguments that the Bank of England moved short-term interest rates in response to changes in domestic economic activity, taken to be an indicator of future changes in its gold reserve position. Our evidence concerning the UK-US price levels supports the rising position of the United States as an economic power during this period.

Suggested Citation

  • Hamid Baghestani & Tracy Mott, 2009. "On the behaviour of UK money, velocity, prices, and output in the gold standard period: 1871-1913," Applied Economics, Taylor & Francis Journals, vol. 41(10), pages 1241-1249.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:10:p:1241-1249
    DOI: 10.1080/00036840600994229
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, March.
    2. Michael D. Bordo & Ronald MacDonald, 1997. "Violations of the `Rules of the Game' and the Credibility of the Classical Gold Standard, 1880-1914," NBER Working Papers 6115, National Bureau of Economic Research, Inc.
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