The inter–war gold exchange standard: Credibility and monetary independence
TL;DR: In this paper, the authors analyzed the operation of the interwar gold exchange standard to see if the evident credibility of the system conferred on participating central banks the ability to pursue independent monetary policies.
About: This article is published in Journal of International Money and Finance.The article was published on 2003-02-01 and is currently open access. It has received 29 citations till now. The article focuses on the topics: Interest rate parity & Covered interest arbitrage.
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TL;DR: This article showed that industrial metals, especially copper, tend to outperform gold and other precious metals as hedging vehicles and safe haven assets against losses in sovereign bonds and that copper is the best performing metal in the period immediately after negative bond price shocks.
Abstract: It is a commonly held view that gold protects investors’ wealth in the event of negative economic conditions. In this study, we test whether other metals offer similar or better investment opportunities in periods of market turmoil. Using a sample of 13 sovereign bonds, we show that other precious metals, palladium in particular, offer investors greater compensation for their bond market losses than gold. We also find that industrial metals, especially copper, tend to outperform gold and other precious metals as hedging vehicles and safe haven assets against losses in sovereign bonds. However, the outcome of the hedge and safe haven properties is not always consistent across the different bonds. Finally, our analysis suggests that copper is the best performing metal in the period immediately after negative bond price shocks.
113 citations
Cites background from "The inter–war gold exchange standar..."
...There is already strong evidence that gold protects investors’ wealth during times of uncertainty and instability (Wallace and Choudhry, 1995; Davidson et al., 2003; Bordo and MacDonald, 2003; Baur and Lucey, 2010 and Baur, 2013)....
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...There is already strong evidence that gold protects investors’ wealth during times of uncertainty and instability (Wallace and Choudhry, 1995; Davidson et al., 2003; Bordo and MacDonald, 2003; Baur and Lucey, 2010 and Baur, 2013)....
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TL;DR: This article proposed a discrete time duration model (using a panel data set of 24 countries for 1928-1936) to analyze how economic and political indicators affected a country's term on the gold standard.
Abstract: Economic historians have devoted enormous attention to the collapse of the interwar gold standard. This article proposes a discrete time duration model (using a panel data set of 24 countries for 1928–1936) to analyze how economic and political indicators affected a country's term on the gold standard. High per capita income, international creditor status, and prior hyperinflation increased the probability of continuation. In contrast, democratic regimes left early. Unemployment, sterling group membership, higher inflation, and the experience of banking crises reduced the time a country remained on the gold standard. This study also predicts sample countries' survival probabilities.
76 citations
Dissertation•
15 Jan 2016
TL;DR: In this paper, the authors discuss the influence of the endettement public on the development of the French economy and its effect on the country's finances, in particular on the adoption of the Endettement Public.
Abstract: Pour comprendre les enjeux li´es `a l’endettement public dans la cr´edibilit´e des accords mon´etairesdans le cas de l’entre-deux-guerres, nous ´etudierons l’influence de l’endettement public sur l’´etalon-or,de sa fondation dans la seconde moiti´e du XIXe si`ecle, `a son abandon au cours de la grande d´epression.La qualit´e des finances publiques, en particulier l’endettement public, fut d´eterminante dans la capacit´ed’une nation `a adh´erer `a cet accord mon´etaire. L’endettement public joua aussi un rˆole d´ecisif dans lafin de ces syst`emes mon´etaires, `a l’issue de la Grande Guerre et lors de la grande d´epression. Dans unsecond temps, notre d´emarche consistera `a comprendre les m´ecanismes qui conduisirent l’endettementpublic `a ˆetre en partie responsable de la fin de l’´etalon de change-or et de l’´emergence de nouveauxblocs mon´etaires dans les ann´ees trente. Face `a la grande d´epression, les modalit´es d’organisation et defonctionnement de cet accord mon´etaire, rendirent impossible son maintien. Si les variables ´economiqueset politiques furent d´eterminantes dans son abandon, celles d’endettement public jou`erent aussi. Apr`esavoir d´ecrit les modalit´es de sortie de l’´etalon de change-or, nous montrerons les m´ecanismes th´eoriquesqui lient les crises mon´etaires et les crises d’endettement et les appliquerons `a la grande d´epression. Nous´etudierons en particulier le cas de la France. Nous montrerons `a l’aide d’un mod`ele de dur´ee, l’influencede la dette publique dans le maintien des parit´es-or pendant la crise. Enfin, nous verrons comment denouveaux blocs mon´etaires se form`erent.
49 citations
Posted Content•
TL;DR: In this paper, the authors provide empirical measures of central bank credibility and augment these with historical narratives from eleven countries, focusing on measures of inflation expectations, the mean reversion properties of inflation, and indicators of exchange rate risk.
Abstract: In this paper we provide empirical measures of central bank credibility and augment these with historical narratives from eleven countries. To the extent we are able to apply reliable institutional information we can also indirectly assess their role in influencing the credibility of the monetary authority. We focus on measures of inflation expectations, the mean reversion properties of inflation, and indicators of exchange rate risk. In addition we place some emphasis on whether credibility is particularly vulnerable during financial crises, whether its evolution is a function of the type of crisis or its kind (i.e., currency, banking, sovereign debt crises). We find credibility changes over time are frequent and can be significant. Nevertheless, no robust empirical connection between the size of an economic shock (e.g., the Great Depression) and loss of credibility is found. Second, the frequency with which the world economy experiences economic and financial crises, institutional factors (i.e., the quality of governance) plays an important role in preventing a loss of credibility. Third, credibility shocks are dependent on the type of monetary policy regime in place. Finally, credibility is most affected by whether the shock can be associated with policy errors.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
44 citations
References
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TL;DR: The authors provide an overview of the gold standard, a survey of the relevant applied research in international macroeconomics, and a demonstration of how the past can help to inform the present.
Abstract: Currency crises in Europe and Mexico during the 1990s provided stark reminders of the importance and the fragility of international financial markets. These experiences led some commentators to conclude that open international capital markets are incompatible with financial stability. But the pre-1914 gold standard is an obvious challenge to the notion that open capital markets are sources of instability. To deepen our understanding of how this system worked, this volume draws together recent research on the gold standard. Theoretical models are used to guide qualitative discussions of historical experience, while econometric methods are used to help the historical data speak clearly. The result is an overview of the gold standard, a survey of the relevant applied research in international macroeconomics, and a demonstration of how the past can help to inform the present.
52 citations
50 citations
50 citations
01 Jan 1996
43 citations
TL;DR: Theories of rules and discretion have become a corner stone in the formulation of macroeconomic policy as mentioned in this paper, and they suggest that monetary policy rules are first best in terms of social welfare, but if commitment is not feasible, delegating monetary policy to an independent and conservative central bank can be second best.
Abstract: Theories of rules and discretion have become a corner stone in the formulation of macroeconomic policy. They suggest that monetary policy rules are first best in terms of social welfare. However, if commitment is not feasible, delegating monetary policy to an independent and conservative central bank can be second best. Monetary policy in Germany during the past one hundred years provides an excellent case to assess the empirical evidence on the use of rules and central bank independence in monetary policy making. Since the creation of a central monetary authority in 1876, Germany has participated in four monetary regimes: the pre-war gold standard, the inter-war gold standard, the Bretton Woods system, and the floating exchange rate regime. With the exception of the two world war periods German monetary policy was geared primarily towards maintaining price stability and characterized by a high degree of formal and practical central bank independence.1
21 citations