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Inflation, money, and output under alternative monetary standards

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  • Arthur J. Rolnick
  • Warren E. Weber

Abstract

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.

Suggested Citation

  • Arthur J. Rolnick & Warren E. Weber, 1994. "Inflation, money, and output under alternative monetary standards," Staff Report 175, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:175
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    References listed on IDEAS

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    1. 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.
    2. 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 864-888, September.
    3. Anna J. Schwartz, 1987. "Secular Price Change in Historical Perspective," NBER Chapters,in: Money in Historical Perspective, pages 78-109 National Bureau of Economic Research, Inc.
    4. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
    5. Michael D. Bordo & Finn E. Kydland, 1990. "The Gold Standard as a Rule," NBER Working Papers 3367, National Bureau of Economic Research, Inc.
    6. anonymous, 1977. "Questioning Federal Reserve policies," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
    7. 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.
    8. Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187.
    9. 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, June.
    10. 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.
    11. 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.
    12. Neil Wallace, 1977. "Why the Fed should consider holding M0 constant," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
    13. Gerald P. Dwyer & R. W. Hafer, 1988. "Is money irrelevant?," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-17.
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    Cited by:

    1. William T. Gavin & Finn E. Kydland, 1999. "Endogenous Money Supply and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 347-369, April.

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    Keywords

    Inflation (Finance) ; Money ; Monetary policy;

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