IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwp/9205.html
   My bibliography  Save this paper

The gold standard as a rule

Author

Listed:
  • Michael D. Bordo
  • Finn E. Kydland

Abstract

In this paper, we show that the monetary rule followed by a number of key countries before 1914 represented a commitment technology preventing the monetary authorities from changing planned future policy. The experiences of these major countries suggest that the gold standard was intended as a contingent rule. By that, we mean that the authorities could temporarily abandon the fixed price of gold during a wartime emergency on the understanding that convertibility at the original price of gold would be restored when the emergency passed.

Suggested Citation

  • Michael D. Bordo & Finn E. Kydland, 1992. "The gold standard as a rule," Working Papers (Old Series) 9205, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:9205
    as

    Download full text from publisher

    File URL: https://fraser.stlouisfed.org/scribd/?item_id=494573&filepath=/docs/historical/frbclev/wp/frbclv_wp1992-05.pdf#scribd-open
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Amy Ellen Schwartz, 2004. "Introduction," Chapters, in: Amy Ellen Schwartz (ed.), City Taxes, City Spending, chapter 1, Edward Elgar Publishing.
    2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    3. Fumio Hayashi, 1989. "Japan's Saving Rate: New Data and Reflections," NBER Working Papers 3205, National Bureau of Economic Research, Inc.
    4. Lars Jonung, 1984. "Swedish Experience under the Classical Gold Standard, 1873-1914," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 361-404, National Bureau of Economic Research, Inc.
    5. Eichengreen, Barry, 1987. "Hegemonic Stability Theories of the International Monetary System," CEPR Discussion Papers 193, C.E.P.R. Discussion Papers.
    6. Eichengreen, Barry, 1989. "The Gold Standard Since Alec Ford," Department of Economics, Working Paper Series qt91z49066, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    7. Fishlow, Albert, 1987. "Market Forces or Group Interests: Inconvertible Currency in Pre-1914 Latin America," Department of Economics, Working Paper Series qt9t062411, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    8. Barro, Robert J., 1987. "Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701-1918," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 221-247, September.
    9. Officer, Lawrence H., 1983. "Dollar-Sterling Mint Parity and Exchange Rates, 1791–1834," The Journal of Economic History, Cambridge University Press, vol. 43(3), pages 579-616, September.
    10. Marvin Goodfriend, 1991. "Money, credit, banking, and payments system policy," Economic Review, Federal Reserve Bank of Richmond, vol. 77(Jan), pages 7-23.
    11. Hugh Rockoff, 1984. "Some Evidence on the Real Price of Gold, Its Costs of Production, and Commodity Prices," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 613-650, National Bureau of Economic Research, Inc.
    12. Chari V. V. & Kehoe Patrick J., 1993. "Sustainable Plans and Debt," Journal of Economic Theory, Elsevier, vol. 61(2), pages 230-261, December.
    13. Roll, Richard, 1972. "Interest Rates and Price Expectations During the Civil War," The Journal of Economic History, Cambridge University Press, vol. 32(2), pages 476-498, June.
    14. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    15. Prescott, Edward C., 1977. "Should control theory be used for economic stabilization?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 7(1), pages 13-38, January.
    16. Giovannini, Alberto, 1986. "`Rules of the game' during the International Gold Standard: England and Germany," Journal of International Money and Finance, Elsevier, vol. 5(4), pages 467-483, December.
    17. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-1097, December.
    18. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May.
    19. Garber, Peter M, 1986. "Nominal Contracts in a Bimetallic Standard," American Economic Review, American Economic Association, vol. 76(5), pages 1012-1030, December.
    20. Michael D. Bordo, 1981. "The classical gold standard: some lessons for today," Review, Federal Reserve Bank of St. Louis, vol. 63(May), pages 2-17.
    21. Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 85-104, Fall.
    22. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    23. Michael D. Bordo & Finn E. Kydland, 1990. "The Gold Standard as a Rule," NBER Working Papers 3367, National Bureau of Economic Research, Inc.
    24. repec:hoo:wpaper:e-89-12 is not listed on IDEAS
    25. Cukierman, Alex, 1988. "Rapid inflation -- deliberate policy or miscalculation?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 11-75.
    26. Allan Meltzer & Saranna Robinson, 1989. "Stability Under the Gold Standard in Practice," NBER Chapters, in: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz, pages 163-202, National Bureau of Economic Research, Inc.
    27. Eichengreen, Barry, 1989. "The Gold Standard Since Alec Ford," CEPR Discussion Papers 347, C.E.P.R. Discussion Papers.
    28. Vittorio Grilli, 1989. "Managing Exchange Rate Crises: Evidence from the 1890's," NBER Working Papers 3068, National Bureau of Economic Research, Inc.
    29. Patrick J. Kehoe, 1989. "Policy Cooperation Among Benevolent Governments May Be Undesirable," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(2), pages 289-296.
    30. Bordo, Michael D., 1986. "Money, deflation and seigniorage in the fifteenth century: A review essay," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 337-346, November.
    31. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    32. Barsky, Robert B., 1987. "The Fisher hypothesis and the forecastability and persistence of inflation," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 3-24, January.
    33. Barsky, Robert B & Summers, Lawrence H, 1988. "Gibson's Paradox and the Gold Standard," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 528-550, June.
    34. Michael D. Bordo, 1993. "The Bretton Woods International Monetary System: A Historical Overview," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 3-108, National Bureau of Economic Research, Inc.
    35. Harold L. Cole & Patrick J. Kehoe, 1991. "Reputation with multiple relationships: reviving reputation models of debt," Staff Report 137, Federal Reserve Bank of Minneapolis.
    36. Richard N. Cooper, 1982. "The Gold Standard: Historical Facts and Future," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 1-56.
    37. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
    38. Neal, Larry, 1991. "A Tale of Two Revolutions: International Capital Flows 1789-1819," Bulletin of Economic Research, Wiley Blackwell, vol. 43(1), pages 57-92, January.
    39. Murphy, Antoin E., 1987. "Richard Cantillon: Entrepreneur and Economist," OUP Catalogue, Oxford University Press, number 9780198285359.
    40. Eichengreen, Barry, 1987. "Conducting the international orchestra: Bank of England leadership under the classical gold standard," Journal of International Money and Finance, Elsevier, vol. 6(1), pages 5-29, March.
    41. Friedman, Milton, 1990. "The Crime of 1873," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1159-1194, December.
    42. Michael D. Bordo & Eugene N. White, 1990. "British and French Finance During the Napoleonic Wars," NBER Working Papers 3517, National Bureau of Economic Research, Inc.
    43. Paul McGouldrick, 1984. "Operations of the German Central Bank and the Rules of the Game, 1879-1913," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 311-360, National Bureau of Economic Research, Inc.
    44. Garber, Peter M. & Grilli, Vittorio U., 1986. "The Belmont-Morgan Syndicate as an optimal investment banking contract," European Economic Review, Elsevier, vol. 30(3), pages 649-677, June.
    45. Glassman, Debra & Redish, Angela, 1988. "Currency depreciation in early modern England and France," Explorations in Economic History, Elsevier, vol. 25(1), pages 75-97, January.
    46. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    47. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
    48. 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(2), pages 303-316, June.
    49. Michael D. Bordo, 1989. "Money, History, and International Finance: Essays in Honor of Anna J. Schwartz," NBER Books, National Bureau of Economic Research, Inc, number bord89-1.
    50. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August.
    51. Anna J. Schwartz, 1984. "Introduction to "A Retrospective on the Classical Gold Standard, 1821-1931"," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 1-22, National Bureau of Economic Research, Inc.
    52. Michael D. Bordo, 1984. "The Gold Standard: The Traditional Approach," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 23-120, National Bureau of Economic Research, Inc.
    53. Redish, Angela, 1990. "The Evolution of the Gold Standard in England," The Journal of Economic History, Cambridge University Press, vol. 50(4), pages 789-805, December.
    54. V. V. Chari, 1988. "Time consistency and optimal policy design," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 17-31.
    55. Goodfriend, Marvin, 1988. "Central banking under the gold standard," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 85-124, January.
    56. Finn Kydland & Edward C. Prescott, 1980. "A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy," NBER Chapters, in: Rational Expectations and Economic Policy, pages 169-198, National Bureau of Economic Research, Inc.
    57. Calomiris, Charles W, 1994. "Price and Exchange Rate Determination during the Greenback Suspension," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 344-344, April.
    58. Prescott, Edward C., 1977. "Should control theory be used for economic stabilization?: A rejoinder," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 7(1), pages 101-102, January.
    59. Bordo, Michael D. (ed.), 1989. "Money, History, and International Finance," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226065939, September.
    60. Lembke B., 1918. "√ a. p," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 111(1), pages 709-712, February.
    61. Michael D. Bordo & Anna J. Schwartz, 1984. "A Retrospective on the Classical Gold Standard, 1821-1931," NBER Books, National Bureau of Economic Research, Inc, number bord84-1.
    62. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    63. Michele Fratianni & Franco Spinelli, 1984. "Italy in the Gold Standard Period, 1861-1914," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 405-454, National Bureau of Economic Research, Inc.
    64. Herschel I. Grossman, 1988. "The Political Economy of War Debts and Inflation," NBER Working Papers 2743, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joseph G. Haubrich & Joseph A. Ritter, 1996. "Dynamic commitment and imperfect policy rules," Working Papers (Old Series) 9601, Federal Reserve Bank of Cleveland.
    2. Eichengreen, Barry, 1993. "The Endogeneity of Exchange Rate Regimes," CEPR Discussion Papers 812, C.E.P.R. Discussion Papers.
    3. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
    4. Jagjit S. Chadha, 2018. "Of Gold and Paper Money," Manchester School, University of Manchester, vol. 86(S1), pages 1-20, September.
    5. 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 157-168, January.
    6. Maurice Obstfeld, 1993. "The Adjustment Mechanism," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 201-268, National Bureau of Economic Research, Inc.
    7. Esteves, Rui Pedro & Reis, Jaime & Ferramosca, Fabiano, 2009. "Market Integration in the Golden Periphery. The Lisbon/London Exchange, 1854-1891," Explorations in Economic History, Elsevier, vol. 46(3), pages 324-345, July.
    8. Ritter, Joseph A, 1995. "The Transition from Barter to Fiat Money," American Economic Review, American Economic Association, vol. 85(1), pages 134-149, March.
    9. Alberto Giovannini, 1992. "Bretton Woods and Its Precursors: Rules Versus Discretion in the History of International Monetary Regimes," NBER Working Papers 4001, National Bureau of Economic Research, Inc.
    10. Bordo, Michael D. & Jonung, Lars, 1994. "Monetary Regimes, Inflation and Monetary Reform: An Essay in Honor of Axel Leijonhufvud," SSE/EFI Working Paper Series in Economics and Finance 16, Stockholm School of Economics.
    11. Barry Eichengreen., 1993. "Prerequisites for International Monetary Stability," Center for International and Development Economics Research (CIDER) Working Papers C93-018, University of California at Berkeley.
    12. Arthur J. Rolnick & Warren E. Weber, 1994. "Inflation, money, and output under alternative monetary standards," Staff Report 175, Federal Reserve Bank of Minneapolis.
    13. Iljoong Kim & Inbae Kim, 2005. "Endogenous changes in the exchange rate regime: A bureaucratic incentive model," Public Choice, Springer, vol. 125(3), pages 339-361, December.
    14. Smith, Gregor W., 1995. "Exchange-rate discounting," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 659-666, October.
    15. Ben Bemanke & Harold James, 1991. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Chapters, in: Financial Markets and Financial Crises, pages 33-68, National Bureau of Economic Research, Inc.
    16. Rui Pedro Esteves, 2007. "Quis custodiet quem? Sovereign Debt and Bondholders` Protection Before 1914," Economics Series Working Papers 323, University of Oxford, Department of Economics.
    17. Charles W. Calomiris & Christopher Hanes, 1994. "Historical Macroeconomics and American Macroeconomic History," NBER Working Papers 4935, National Bureau of Economic Research, Inc.
    18. H.P. Grãœner & C. Hefeker, 1995. "Domestic pressures and the exchange rate regime: why economically bad decisions are politically popular?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 48(194), pages 331-350.
    19. Michael D. Bordo & Finn E. Kydland, 1990. "The Gold Standard as a Rule," NBER Working Papers 3367, National Bureau of Economic Research, Inc.
    20. Muscatelli, V Anton, 1998. "Political Consensus, Uncertain Preferences, and Central Bank Independence," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 412-430, July.
    21. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 45-68, Spring.
    22. Richard S. Grossman, 2006. "Other People’s Money: The Evolution of Bank Capital in the Industrialized World," Wesleyan Economics Working Papers 2006-020, Wesleyan University, Department of Economics.
    23. Hefeker, Carsten, 1995. "The political choice and collapse of fixed exchange rates," Discussion Papers, Series II 277, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael D. Bordo, 1993. "The gold standard, Bretton Woods and other monetary regimes: a historical appraisal," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 123-191.
    2. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234, Elsevier.
    3. Michael D. Bordo & Anna J. Schwartz, 1994. "The Specie Standard as a Contingent Rule: Some Evidence for Core and Peripheral Countries, 1880-1990," NBER Working Papers 4860, National Bureau of Economic Research, Inc.
    4. Bordo, Michael D., 1986. "Explorations in monetary history: A survey of the literature," Explorations in Economic History, Elsevier, vol. 23(4), pages 339-415, October.
    5. Bordo, Michael D. & Jonung, Lars, 1994. "Monetary Regimes, Inflation and Monetary Reform: An Essay in Honor of Axel Leijonhufvud," SSE/EFI Working Paper Series in Economics and Finance 16, Stockholm School of Economics.
    6. V. V. Chari, 1988. "Time consistency and optimal policy design," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 17-31.
    7. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482, Elsevier.
    8. Chari V. V. & Kehoe Patrick J., 1993. "Sustainable Plans and Debt," Journal of Economic Theory, Elsevier, vol. 61(2), pages 230-261, December.
    9. Eichengreen, Barry, 1989. "The Capital Levy in Theory and Practice," Department of Economics, Working Paper Series qt11j4756b, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    10. Newby, Elisa, 2012. "The suspension of the gold standard as sustainable monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1498-1519.
    11. Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approval”," The Journal of Economic History, Cambridge University Press, vol. 56(2), pages 389-428, June.
    12. Zhigang Feng, 2015. "Time‐consistent optimal fiscal policy over the business cycle," Quantitative Economics, Econometric Society, vol. 6(1), pages 189-221, March.
    13. P.Antipa, 2014. "How Fiscal Policy Affects the Price Level: Britain’s First Experience with Paper Money," Working papers 525, Banque de France.
    14. Eichengreen, Barry, 1989. "The Capital Levy in Theory and Practice," Department of Economics, Working Paper Series qt11j4756b, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    15. Maurice Obstfeld, 1989. "Dynamic Seigniorage Theory: An Exploration," NBER Working Papers 2869, National Bureau of Economic Research, Inc.
    16. V. V. Chari & Patrick J. Kehoe, 1993. "Sustainable Plans and Mutual Default," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 175-195.
    17. Sargent, Thomas J & Velde, Francois R, 1995. "Macroeconomic Features of the French Revolution," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 474-518, June.
    18. Kollintzas, Tryphon & Philippopoulos, Apostolis & Vassilatos, Vanghelis, 1999. "Normative Aspects of Fiscal Policy in an Economic Union: a Review," CEPR Discussion Papers 2212, C.E.P.R. Discussion Papers.
    19. Michael D. Bordo & Ronald MacDonald, 1997. "Violations of the `Rules of the Game' and the Credibility of the Classical Gold Standard, 1880-1914," NBER Working Papers 6115, National Bureau of Economic Research, Inc.
    20. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:9205. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.