Interest rate interactions in the classical gold standard, 1880-1914: was there any monetary independence?

Bordo, M.D. and Macdonald, R. (2005) Interest rate interactions in the classical gold standard, 1880-1914: was there any monetary independence? Journal of Monetary Economics, 52, pp. 307-327. (doi:10.1016/j.jmoneco.2004.05.008)

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Abstract

This paper examines an hypothesis of Svensson (1994) (Journal of Monetary Economics 33, 157–199) that a credible target zone can confer on a country a degree of independence in the operation of its monetary policy, even when exchange rates are fixed. We test this hypothesis for the Classical gold standard using a newly created monthly data base for the period 1880–1913. Building on the recently noted finding that the Classical gold standard represented a credible, well-behaved, target zone system we propose a number of ways of testing the Svensson’ model. Our main finding is that the Classical gold standard did indeed confer some independence in the operation of monetary policy for participating countries. This would seem to have an important bearing on the kind of institutional framework required for a modern day target zone to function effectively and, in particular, to weather speculative attacks.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald
Authors: Bordo, M.D., and Macdonald, R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Monetary Economics
ISSN:0304-3932
Published Online:07 March 2005

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