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The Gibson paradox: Evidence from China

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  • Cheng, Hao
  • Kesselring, Randall G.
  • Brown, Christopher R.

Abstract

Recent literature has advanced the view that the Gibson paradox, or the positive correlation of the price level with nominal interest rates, is nearly always a gold standard phenomenon. We argue that the Gibson correlation is more accurately classified as a statistical artifact of commodity money systems, with the gold standard merely representing one such system. Using new evidence from Chinese monetary history, this article gives evidence that the Gibson paradox appeared during China's silver-cored metallic standard era. Estimates obtained from recursive ordinary least squares specifications and vector auto-regressions performed, using the Shanghai Yinchai Rate and the Chinese Wholesale Price Index, confirm a Gibson correlation for China during the period 1873–1924.

Suggested Citation

  • Cheng, Hao & Kesselring, Randall G. & Brown, Christopher R., 2013. "The Gibson paradox: Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 82-93.
    • Handle: RePEc:eee:chieco:v:27:y:2013:i:c:p:82-93
    DOI: 10.1016/j.chieco.2013.08.001
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    References listed on IDEAS

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    1. Chen, Chung & Lee, Chi-Wen Jevons, 1990. "A VARMA Test on the Gibson Paradox," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 96-107, February.
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    6. Klein, Benjamin, 1975. "Our New Monetary Standard: The Measurement and Effects of Price Uncertainty, 1880-1973," Economic Inquiry, Western Economic Association International, vol. 13(4), pages 461-484, December.
    7. Lee, Chi-Wen Jevons & Petruzzi, Christopher R, 1986. "The Gibson Paradox and the Monetary Standard," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 189-196, May.
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    Cited by:

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    2. Fedotenkov, Igor, 2015. "Population ageing and prices in an OLG model with money created by credits," MPRA Paper 66056, University Library of Munich, Germany.

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    More about this item

    Keywords

    Gibson paradox; Commodity money; Gold standard; Recursive OLS; Vector autoregression;
    All these keywords.

    JEL classification:

    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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