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Stability Without a Pact? Lessons from the European Gold Standard 1880-1914

Author

Listed:
  • Flandreau, Marc
  • Le Cacheux, Jacques
  • Zumer, Frédéric

Abstract

The high level of trade and financial integration reached by Europe both today and under the late 19th century gold standard suggests that important lessons can be learned by looking at past record to inform current issues. In this article, we draw a fresh picture of the European gold standard, and use it to derive a number of useful implications. The paper’s basic finding is that the stability of the European gold standard depended on the stance of the common monetary policy. Under the gold standard, this stance was disturbingly deflationary prior to 1895. As a result, debts became exceedingly heavy and monetary standards crumbled under their weight, not so much because fiscal policies became looser, but rather because debt burdens became unsustainable in the wake of continued deflation. Once gold was discovered and deflation gave way to inflation, real interest rates fell and debt grew more slowly. This study’s clear implication for the EMU zone, is that stability will hinge on the European Central Bank’s (ECB) policy not being too restrictive.

Suggested Citation

  • Flandreau, Marc & Le Cacheux, Jacques & Zumer, Frédéric, 1998. "Stability Without a Pact? Lessons from the European Gold Standard 1880-1914," CEPR Discussion Papers 1872, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1872
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    References listed on IDEAS

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    1. Sandmo, Agnar, 1979. "A note on the neutrality of the cash flow corporation tax," Economics Letters, Elsevier, vol. 4(2), pages 173-176.
    2. Siebert, Horst, 1997. "Disziplinierung der nationalen Wirtschaftspolitik: durch die internationale Kapitalmobilität," Kiel Working Papers 832, Kiel Institute for the World Economy (IfW).
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    More about this item

    Keywords

    Gold Standard; public debts; Stability Pact;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N2 - Economic History - - Financial Markets and Institutions

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