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The Suspension of the Gold Standard as Sustainable Monetary Policy

  • Newby, E.

This paper models the gold standard as a state contingent commitment rule that is only feasible during peace. It shows that monetary policy during war, when the gold convertibility rule is suspended, can still be credible, if the policy maker's plan is to resume the gold standard at the old par value in the future. The DGE model developed in this paper suggests that the resumption of the gold standard was a sustainable plan, which replaced the gold standard as a commitment rule and made monetrary policy time consistent. The equilibrium is supported by trigger strategies, where private agents retaliate if a policy maker defaults its policy plan to resume the gold standard rule.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0856.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0856.

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Date of creation: Nov 2008
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Handle: RePEc:cam:camdae:0856
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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