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How Fiscal Policy Affects the Price Level: Britain’s First Experience with Paper Money

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  • P.Antipa

Abstract

Between 1797 and 1821, Britain suspended the gold standard in order to finance the Napoleonic Wars. This measure was accompanied by large scale debt accumulation and inflation: After Napoleon’s final defeat at Waterloo in 1815, the debt to GDP ratio had climbed to 226%; the price level exceeded its 1797 level by 22.3%. Under these circumstances and given that institutional settings allowed excluding the possibility of strategic default, I will show that expectations of how debt would be stabilized in the future shaped the observed evolution of the price level. Thus, my contribution establishes the importance of fiscal determinants of the price level.

Suggested Citation

  • P.Antipa, 2014. "How Fiscal Policy Affects the Price Level: Britain’s First Experience with Paper Money," Working papers 525, Banque de France.
  • Handle: RePEc:bfr:banfra:525
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    Cited by:

    1. P. Antipa & C. Chamley, 2017. "Monetary and Fiscal Policy in England during the French Wars (1793-1821)," Working papers 627, Banque de France.
    2. William Roberds, 2016. "Review of Making Money: Coin, Currency, and the Coming of Capitalism by Christine Desan," Journal of Economic Literature, American Economic Association, vol. 54(3), pages 906-921, September.

    More about this item

    Keywords

    Debt monetization; sovereign debt; inflation; structural breaks.;

    JEL classification:

    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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