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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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  10. Carlstrom, Charles T. & Fuerst, Timothy S., 1995. "Interest rate rules vs. money growth rules a welfare comparison in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 247-267, November.
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  12. Bordo Michael D. & Dittmar Robert D & Gavin William T., 2007. "Gold, Fiat Money, and Price Stability," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-31, August.
  13. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  14. Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, vol. 89(353), pages 13-33, March.
  15. Goodfriend, Marvin, 1988. "Central banking under the gold standard," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 85-124, January.
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  17. Bordo, Michael D & Redish, Angela, 1993. "Maximizing Seignorage Revenue during Temporary Suspensions of Convertibility: A Note," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 157-68, January.
  18. Bordo, Michael D. & White, Eugene N., 1991. "A Tale of Two Currencies: British and French Finance During the Napoleonic Wars," The Journal of Economic History, Cambridge University Press, vol. 51(02), pages 303-316, June.
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  25. Newby, E., 2008. "The Suspension of the Gold Standard as Sustainable Monetary Policy," Cambridge Working Papers in Economics 0856, Faculty of Economics, University of Cambridge.
  26. Ireland, Peter N., 1997. "Sustainable monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 87-108, November.
  27. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, 07.
  28. Chang, Roberto, 1998. "Credible Monetary Policy in an Infinite Horizon Model: Recursive Approaches," Journal of Economic Theory, Elsevier, vol. 81(2), pages 431-461, August.
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  31. Paul Krugman & Marcus Miller, 1992. "Exchange Rate Targets and Currency Bands," NBER Books, National Bureau of Economic Research, Inc, number krug92-1, 07.
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