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A new perspective on the Gold Standard: Inflation as a population phenomenon

  • Joao Ricardo Faria

    (University of Texas at El Paso)

  • Peter McAdam

    (University of Surrey)

The purpose of this paper is to contribute a new model of the Gold Standard, focusing on the interaction between resource scarcity and demographics. In a dynamic micro-founded model we find that: i) prices and equilibrium gold holdings increase with population (a scale effect), but decrease with the population growth rate; ii) that the Gold Standard implies deflation unless extraction resources outstrip population growth; iii) there is no optimal quantity of money. The predictions of the model are examined using a structural VAR. Our results also shed light on debates about the viability of a return to the Gold Standard, and, more generally, on the interaction between policy variables and scarce resources.

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Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0412.

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Length: 25 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:sur:surrec:0412
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  1. Philip Cagan, 1965. "Determinants and Effects of Changes in the Stock of Money, 1875–1960," NBER Books, National Bureau of Economic Research, Inc, number caga65-1, December.
  2. Michael D. Bordo & John Landon Lane & Angela Redish, 2004. "Good versus Bad Deflation: Lessons from the Gold Standard Era," NBER Working Papers 10329, National Bureau of Economic Research, Inc.
  3. Gabriel Fagan & James R. Lothian & Paul D. Mcnelis, 2013. "Was The Gold Standard Really Destabilizing?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(2), pages 231-249, 03.
  4. Robert B. Barsky & Lawrence H. Summers, 1985. "Gibson's Paradox and the Gold Standard," NBER Working Papers 1680, National Bureau of Economic Research, Inc.
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  7. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133, July.
  8. 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.
  9. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  10. 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.
  11. Allan H. Meltzer, 1983. "Monetary Reform in an Uncertain Environment," Cato Journal, Cato Journal, Cato Institute, vol. 3(1), pages 93-120, Spring.
  12. Wang, Ping & Yip, Chong K, 1992. "Alternative Approaches to Money and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 553-62, November.
  13. Miguel Sidrauski, 1967. "Inflation and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 75, pages 796.
  14. Miguel A. Le�n-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-57, September.
  15. Paul A. Samuelson, 1968. "What Classical and Neoclassical Monetary Theory Really was," Canadian Journal of Economics, Canadian Economics Association, vol. 1(1), pages 1-15, February.
  16. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
  17. Kevin Dowd & Barry Harrison, 2000. "The Gibson paradox and the Gold Standard: evidence from the United Kingdom, 1821-1913," Applied Economics Letters, Taylor & Francis Journals, vol. 7(11), pages 711-713.
  18. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  19. 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.
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