A Gold Standard Isn't Viable Unless Supported by Sufficiently Flexible Monetary and Fiscal Policy
The paper studies an idealized gold standard in a two-country setting. Unless national policies for domestic credit expansion (dce) are flexible enough to offset the effect of money demand shocks on international gold reserves, the gold standard collapses with certainty in finite time through a speculative selling attack against one of the currencies. Various policies for postponing a collapse are considered. When a dce policy is sufficiently responsive and eliminates the danger of a run on a country's reserves, the exogenous shocks disturbing the system, which previously were reflected in reserve flows, now show up in the behaviour of the public debt. Unless the primary (non-interest) government deficit is permitted to respond to these shocks, the public debt is likely to rise (or fall) to unsustainable levels. The idealized gold standard analysed in this paper is only viable through the active and flexible use of monetary and fiscal policy.
|Date of creation:||Aug 1986|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert P. Flood & Peter M. Garber, 1982.
"A model of stochastic process switching,"
International Finance Discussion Papers
201, Board of Governors of the Federal Reserve System (U.S.).
- Maurice Obstfeld, 1983.
"Balance-of-Payments Crises and Devaluation,"
NBER Working Papers
1103, National Bureau of Economic Research, Inc.
- Willem H. Buiter, 1984.
"Saddlepoint Problems in Contifuous Time Rational Expectations Models: A General Method and Some Macroeconomic Ehamples,"
NBER Technical Working Papers
0020, National Bureau of Economic Research, Inc.
- Buiter, Willem H, 1984. "Saddlepoint Problems in Continuous Time Rational Expectations Models: A General Method and Some Macroeconomic Examples," Econometrica, Econometric Society, vol. 52(3), pages 665-80, May.
- Buiter, W, 1982. "Saddlepoint Problems in Continuous Time Rational Expectations Models : A General Method and Some Macroeconomic Examples," The Warwick Economics Research Paper Series (TWERPS) 200, University of Warwick, Department of Economics.
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
- Maurice Obstfeld, 1984.
"Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments,"
NBER Working Papers
1437, National Bureau of Economic Research, Inc.
- Maurice Obstfeld, 1986. "Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 1-22, February.
- Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, vol. 20(1-2), pages 143-156, February.
- Robert B. Barsky & Lawrence H. Summers, 1985.
"Gibson's Paradox and the Gold Standard,"
NBER Working Papers
1680, National Bureau of Economic Research, Inc.
- Stephen W. Salant & Dale W. Henderson, 1976. "Market anticipations, government policy, and the price of gold," International Finance Discussion Papers 81, Board of Governors of the Federal Reserve System (U.S.).
- Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-48, August.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:125. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.