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The Suspension of the Gold Standard as Sustainable Monetary Policy

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  • Newby, E.

Abstract

This paper models the gold standard as a state contingent commitment rule that is only feasible during peace. It shows that monetary policy during war, when the gold convertibility rule is suspended, can still be credible, if the policy maker's plan is to resume the gold standard at the old par value 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 rule and made monetrary policy time consistent. The equilibrium is supported by trigger strategies, where private agents retaliate if a policy maker defaults its policy plan to resume the gold standard rule.

Suggested Citation

  • Newby, E., 2008. "The Suspension of the Gold Standard as Sustainable Monetary Policy," Cambridge Working Papers in Economics 0856, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0856
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The gold standard as a commitment technology
      by Economic Logician in Economic Logic on 2009-12-16 09:45:00

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    Cited by:

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    2. Newby, Elisa, 2012. "The suspension of the gold standard as sustainable monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1498-1519.
    3. Fregert, Klas, 2011. "Belling the cat: Eli F. Heckscher on the gold standard as a discipline device," Working Papers 2011:19, Lund University, Department of Economics.
    4. Lucian Croitoru, 2018. "How Countries’ Different Attitudes towards Inflation can thwart the European Dream," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 21(70), pages 2-41, December.
    5. Patrick K. O’Brien & Nuno Palma, 2019. "Danger To The Old Lady Of Threadneedle Street? The Bank Restriction Act And The Regime Shift To Paper Money, 1797-18211," Working Papers 0082, Utrecht University, Centre for Global Economic History.
    6. Duncan, Alfred & Nolan, Charles, 2023. "Adam Smith And The Bankers: Retrospect And Prospect," National Institute Economic Review, National Institute of Economic and Social Research, vol. 265, pages 70-104, August.
    7. P.Antipa, 2014. "How Fiscal Policy Affects the Price Level: Britain’s First Experience with Paper Money," Working papers 525, Banque de France.
    8. Antipa, P., 2013. "Fiscal Sustainability and the Value of Money: Lessons from the British Paper Pound, 1797-1821," Working papers 466, Banque de France.

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    More about this item

    Keywords

    Gold standard; Time consistency; Monetary policy; Monetary regimes.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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