A Model of the Gold Standard

Jesus Fernandez-Villaverde and Daniel Sanches

No 22-33, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The gold standard emerged as the international monetary system by the end of the 19th century. We formally study its properties in a micro-founded model and find that the scarcity of the world gold stock not only results in a suboptimal output of goods that are purchased with money but also subjects the domestic economy of a country to external shocks. The creation of inside money in the form of private credit instruments adds to the money supply, usually resulting in a Pareto improvement, but opens the door to the international transmission of banking crises. These properties of the gold standard can explain the limited adherence by peripheral countries because of the potential risks to their economies. We argue that the gold standard can be sustainable at the core but not at the periphery.

Keywords: gold standard; specie flows; non-neutrality of money; inside money (search for similar items in EconPapers)
JEL-codes: E42 E58 G21 (search for similar items in EconPapers)
Pages: 28
Date: 2022-09-21
New Economics Papers: this item is included in nep-dge, nep-his, nep-mac, nep-mon, nep-opm and nep-pay
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A model of the gold standard (2023)
Working Paper: A Model of the Gold Standard (2022)
Working Paper: A Model of the Gold Standard (2022)
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DOI: 10.21799/frbp.wp.2022.33

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