Monetary Policy and the Determinants of Gold-Flows in Gold Standard Germany: 1876–1913

This chapter focuses on the discount rate policy of the Reichsbank during the gold standard. It analyses by means of econometric techniques the economic factors which influenced the Reichsbank’s decisions to change the official discount rate. It also tries to answer the question of whether the Reichsbank followed the so-called ‘rules of the game’. At the risk of some oversimplification, the ‘rules of the game’ have been interpreted in the gold standard literature in three different ways: 1. A narrow interpretation, implying that a central bank followed the ‘rules of the game’ if its main concern was the covertibility of the currency and if it changed the discount rate in response to changes in its liquidity ratios. This interpretation seems to have been adopted by Goodhart (1972) in analysing the behaviour of the Bank of England. 2. A second interpretation, implying that a central bank followed ‘the rules of the game’l it changed its domestic assets in the same direction as its foreign assets in a given time interval, thus speeding up the balance-of-payments adjustment process. This interpretation was adopted by Bloomfield (1959); 3. A third interpretation, implying that a central bank followed the ‘rules of the game’ if the discount rate was changed so as to lead to an anti-cyclical behaviour of its assets and liabilities. This interpretation was adopted by McGouldrick (1984) in his analysis of the behaviour of the Reichsbank.