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The Suspension of the Gold Standard as Sustainable Monetary Policy

  • Elisa Newby

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This paper models the gold standard as a state contingent commitment technology that is only feasible during peace. Monetary policy during war, when the gold convertibility rule suspended, can still be credible, if the policy maker’s plan is to resume the gold standard in the future. The DGE model developed in this paper suggests that the resumption of the gold standard was a sustainable plan, which replaced the gold standard as a commitment technology and made monetary policy time consistent. Trigger strategies support the equilibrium: private agents retaliate if a policy maker defaults its plan to resume the gold standard.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/cp0907.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0907.

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Date of creation: Jun 2009
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Handle: RePEc:san:cdmacp:0907
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