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  • Mitchener, Kris James

    (University of Warwick)

  • Weidenmier, Marc D

    (Claremont McKenna College)

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    There is a long-standing debate as to whether the Fisher effect operated during the classical gold standard period. We break new ground on this question by developing a market-based measure of inflation expectations during the gold standard. We derive a measure of silver-gold inflation expectations using the interest-rate differential between Austrian silver and gold perpetuity bonds. Our use of the silver-gold interest rate differential is motivated by the fact that both gold and silver served as numeraires in the pre-WWI period, so that a change in the price of either precious metal would impact the prices of all goods and services. The empirical evidence suggests that silver-gold inflation expectations exhibited significant persistence at the weekly, monthly, and annual frequencies. Further, we find that there is a one-to-one relationship between silver-gold inflation expectations and the interest rate on Austrian perpetuity bonds that were denominated in paper currency. The analysis suggests the operation of a Fisher effect during the classical gold standard period.

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/research/wpfeed/archive/133-mitchener.pdf
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    Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 133.

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    Date of creation: 2013
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    Handle: RePEc:cge:wacage:133
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    Web page: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/

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    1. Marc Flandreau & Kim Oosterlinck, 2011. "Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities," Working Papers 0005, European Historical Economics Society (EHES).
    2. Flandreau, Marc & Galimard, Christophe & Jobst, Clemens & Nogues-Marco, Pilar, 2006. "The Bell Jar: Commercial Interest Rates between Two Revolutions, 1688-1789," CEPR Discussion Papers 5940, C.E.P.R. Discussion Papers.
    3. 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.
    4. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
    5. Hugh Rockoff & Michael D. Bordo, 1996. "The Gold Standard as a "Good Housekeeping Seal of Approval"," Departmental Working Papers 199528, Rutgers University, Department of Economics.
    6. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
    7. Barsky, Robert B & De Long, J Bradford, 1991. "Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 815-36, August.
    8. Harley, C. Knick, 1977. "The interest rate and prices in Britain, 1873-1913: A study of the Gibson Paradox," Explorations in Economic History, Elsevier, vol. 14(1), pages 69-89, January.
    9. Shiller, Robert J & Siegel, Jeremy J, 1977. "The Gibson Paradox and Historical Movements in Real Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 891-907, October.
    10. Giuseppe Tullio & Jürgen Wolters, 2007. "Monetary Policy in Austria–Hungary, 1876–1913: An Econometric Analysis of the Determinants of the Central Bank’s Discount Rate and the Liquidity Ratio," Open Economies Review, Springer, vol. 18(5), pages 521-537, November.
    11. Perez, Stephen J & Siegler, Mark V, 2003. " Inflationary Expectations and the Fisher Effect prior to World War I," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 947-65, December.
    12. 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, May.
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