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Inflation, money, and output under alternative monetary standards

  • Arthur J. Rolnick
  • Warren E. Weber
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    Our study examines whether there is a systematic relationship between the monetary standard under which a country operates and the rate of inflation it experiences. It also explores whether there are other properties of inflation, money, and output that differ between economies operating under a commodity standard and economies operating under a fiat standard. The basis for our study is price, money, and output data for 15 countries that have operated under both types of monetary standards. For each of these countries the data cover 80 years, and for most the data cover more than 100 years. With these data we are able to establish several facts about the differences in inflation, money growth, and output growth between economies operating under commodity standards and those operating under fiat standards. Specifically, we find that the following facts emerge when comparing commodity standards to fiat standards: inflation, money growth, and output growth are all lower; growth rates of monetary aggregates are less highly correlated with each other; growth rates of monetary aggregates are less highly correlated with inflation; and growth rates of monetary aggregates are more highly correlated with output growth.

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    Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 175.

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    Date of creation: 1994
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    Handle: RePEc:fip:fedmsr:175
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    1. Michael D. Bordo & Finn E. Kydland, 1992. "The gold standard as a rule," Working Paper 9205, Federal Reserve Bank of Cleveland.
    2. Thomas J. Weiss, 1992. "U. S. Labor Force Estimates and Economic Growth, 1800-1860," NBER Chapters, in: American Economic Growth and Standards of Living before the Civil War, pages 19-78 National Bureau of Economic Research, Inc.
    3. Smith, Bruce D, 1985. "Some Colonial Evidence on Two Theories of Money: Maryland and the Carolinas," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1178-1211, December.
    4. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-88, September.
    5. Neil Wallace, 1977. "Why the Fed should consider holding M0 constant," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
    6. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
    7. Schwartz, Anna J, 1973. "Secular Price Change in Historical Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 243-69, Part II F.
    8. Gerald P. Dwyer & R.W. Hafer, 1988. "Is money irrelevant?," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-17.
    9. Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187.
    10. Milton Friedman & Anna Jacobson Schwartz, 1970. "Monetary Statistics of the United States: Estimates, Sources, Methods," NBER Books, National Bureau of Economic Research, Inc, number frie70-1, October.
    11. Pierre Sicsic, 1989. "Estimation du stock de monnaie métallique en France à la fin du XIXe siècle," Revue Économique, Programme National Persée, vol. 40(4), pages 709-736.
    12. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
    13. anonymous, 1977. "Questioning Federal Reserve policies," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
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