 A model of the gold standardJesus Fernandez-Villaverde and Daniel Sanches Journal of Economic Theory, 2023, vol. 214, issue C Abstract: We present a micro-founded monetary model of a small open economy to examine the behavior of money, prices, and output under the gold standard. In particular, we formally analyze Hume's celebrated price-specie flow mechanism. Our framework incorporates the influence of international trade on the money supply in the Home country through gold flows. In the short run, a positive correlation exists between the quantity of money and the price level. Additionally, we demonstrate that money is non-neutral during the transition to the steady state, which has implications for welfare. While the gold standard exposes the Home country to short-term fluctuations in money, prices, and output caused by external shocks, it ensures long-term price stability as the quantity of money and prices only temporarily deviate from their steady-state levels. We discuss the importance of policy coordination for achieving efficiency under the gold standard and consider the role of fiat money in this environment. We also develop a version of the model with two large economies. Keywords: Gold standard; Specie flows; Non-neutrality of money; Long-run price stability; Inelastic money supply (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:214:y:2023:i:c:s0022053123001552 DOI: 10.1016/j.jet.2023.105759 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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