Good versus Bad Deflation: Lessons from the Gold Standard Era
Deflation has had a bad rap, largely based on the experience of the 1930's when deflation was synonymous with depression. Recent experience with declining prices in Japan and China together with the concern over deflation in Europe and the United States has led to renewed attention to the topic of deflation. In this paper we focus our attention on the deflation experience of the United States, the United Kingdom, and Germany in the late nineteenth century during a period characterized by low deflation, rapid productivity growth, positive output growth, and where many nations had a credible nominal anchor based on gold: circumstances which have resonance with the world of today. We identify aggregate supply, aggregate demand, and money supply shocks using a structural panel vector autoregression. We then use historical decompositions to investigate the impact that these structural shocks had on output and prices. Our findings are that the deflation of the late nineteenth century reflected both positive aggregate supply shocks and negative money supply shocks. However, the negative money supply shocks had little effect on output. This we posit is because the aggregate supply curve was very steep in the short run during this period. This contrasts greatly with the deflation experience during the Great Depression. Thus our empirical evidence suggests that deflation in the nineteenth century was primarily good.
|Date of creation:||Feb 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
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.:
- Pesaran, M.H. & Smith, R., 1992.
"Estimating Long-Run Relationships From Dynamic Heterogeneous Panels,"
Cambridge Working Papers in Economics
9215, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
- Orphanides, Athanasios, 2001.
"Monetary policy rules, macroeconomic stability and inflation: a view from the trenches,"
Working Paper Series
0115, European Central Bank.
- Orphanides, Athanasios, 2004. "Monetary Policy Rules, Macroeconomic Stability, and Inflation: A View from the Trenches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 151-75, April.
- Athanasios Orphanides, 2001. "Monetary policy rules, macroeconomic stability and inflation: a view from the trenches," Finance and Economics Discussion Series 2001-62, Board of Governors of the Federal Reserve System (U.S.).
- Bergman, U. Michael & Bordo, Michael D. & Jonung, Lars, 1998.
"Historical Evidence on Business Cycles: The International Experience,"
SSE/EFI Working Paper Series in Economics and Finance
255, Stockholm School of Economics.
- U. Michael Bergman & Michael D. Bordo & Lars Jonung, 1998. "Historical evidence on business cycles: the international experience," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 65-119.
- Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988.
"Estimating Vector Autoregressions with Panel Data,"
Econometric Society, vol. 56(6), pages 1371-95, November.
- Tom Doan, . "RATS program to demonstrate IV estimation of VAR in panel data," Statistical Software Components RTZ00185, Boston College Department of Economics.
- Olivier Jean Blanchard & Danny Quah, 1988.
"The Dynamic Effects of Aggregate Demand and Supply Disturbance,"
497, Massachusetts Institute of Technology (MIT), Department of Economics.
- Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Christopher J. Erceg & Charles L. Evans, 1997.
"Money, sticky wages, and the Great Depression,"
Working Paper Series, Macroeconomic Issues
WP-97-02, Federal Reserve Bank of Chicago.
- Michael D. Bordo & Christopher J. Erceg & Charles L. Evans, 1997. "Money, Sticky Wages, and the Great Depression," NBER Working Papers 6071, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Christopher J. Erceg & Charles L. Evans, 1997. "Money, sticky wages, and the Great Depression," International Finance Discussion Papers 591, Board of Governors of the Federal Reserve System (U.S.).
- Canova, Fabio & Ciccarelli, Matteo, 2004.
"Forecasting and turning point predictions in a Bayesian panel VAR model,"
Journal of Econometrics,
Elsevier, vol. 120(2), pages 327-359, June.
- Fabio Canova & Matteo Ciccarelli, 2000. "Forecasting And Turning Point Predictions In A Bayesian Panel Var Model," Working Papers. Serie AD 2000-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Canova, Fabio & Ciccarelli, Matteo, 2001. "Forecasting and Turning Point Predictions in a Bayesian Panel VAR Model," CEPR Discussion Papers 2961, C.E.P.R. Discussion Papers.
- Fabio Canova & Matteo Ciccarelli, 1999. "Forecasting and turning point predictions in a Bayesian panel VAR model," Economics Working Papers 443, Department of Economics and Business, Universitat Pompeu Fabra.
- Timothy J. Kehoe & Edward C. Prescott, 2002.
"Great Depressions of the Twentieth Century,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January.
- Timothy Kehoe & Edward Prescott, 2002. "Data Appendix to Great Depressions of the Twentieth Century," Technical Appendices kehoe02, Review of Economic Dynamics.
- Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, vol. 89(353), pages 13-33, March.
- Jeffrey C. Fuhrer & Scott Schuh, 1998. "Beyond shocks: what causes business cycles?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun).
- Ben S. Bernanke, 1983.
"Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,"
NBER Working Papers
1054, National Bureau of Economic Research, Inc.
- Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
- Taimur Baig & JÃ¶rg Decressin & Tarhan Feyzioglu & Manmohan S. Kumar & Chris Faulkner-MacDonagh, 2003. "Deflation; Determinants, Risks, and Policy Options," IMF Occasional Papers 221, International Monetary Fund.
- Bordo, Michael David & Ellson, Richard Wayne, 1985. "A model of the classical gold standard with depletion," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 109-120, July.
- Michael D. Bordo, 1981. "The classical gold standard: some lessons for today," Review, Federal Reserve Bank of St. Louis, issue May, pages 2-17.
- Chappell, David & Dowd, Kevin, 1997. "A Simple Model of the Gold Standard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 94-105, February.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:10329. 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: ()
If references are entirely missing, you can add them using this form.