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An Examination of the Asymmetric Effects of Money Supply Shocks in the Pre-World War I and Interwar Periods

  • Randall E. Parker
  • Phillip Rothman
  • Original: August 2000. This version: June 2003.

We test whether monetary shocks had asymmetric output effects before World War II. Ball and Mankiw (1994) show that expectations of persistent inflation under fiat money can explain why negative monetary shocks had larger effects than positive shocks after World War II. Consistent with this explanation, we find such asymmetry in the interwar period following the abandonment of the gold standard and before it, when agents arguably anticipated this development. We find no monetary asymmetry before World War I, which is consistent with Ball and Mankiw (1994), because under a credible gold standard, agents do not expect persistent inflation. (JEL E31, ES2) Copyright 2004, Oxford University Press.

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Paper provided by East Carolina University, Department of Economics in its series Working Papers with number 0302.

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