Monetary Policy under the Classical Gold Standard

Explorations in Economic History, 2013

Drawing on a new data set of monthly observations, this paper investigates similarities and differences in discount rate policy of 12 European countries under the Classical Gold Standard; it asks, in particular, whether bank rate policy followed different patterns in core and peripheral countries. Based on OLS, ordered probit and pooled estimations of central bank discount rate behaviour, two main findings emerge: first, the discount rate decisions of core countries were motivated by keeping the exchange-rate within the gold points. In stark contrast, the discount rate decisions of peripheral countries reflected changes in the domestic cover ratio. The main reason for the different behaviour was the limited effectiveness of the discount rate tool for peripheral countries which resulted in more frequent gold point violations. Consequently, peripheral countries relied on high reserve levels and oriented their discount rate policy towards maintaining the reserve level. Second, interest rate decisions were influenced by Berlin and London to a similar degree, suggesting that the European branch of the Classical Gold Standard was less London-centered than hitherto assumed. In establishing general patterns of discount rate policy, this paper aims to contribute to the wider question of monetary policy under the gold standard and the core-periphery dichotomy.

Lund Papers in Economic History. General Issues; No. 2019:190, 2019

While there is a huge literature on exchange rate systems since the classical gold standard, less research has been devoted to comparisons of the different arguments that guided the choices. While the origin of the international gold standard in the 1870s was a result of silver coins disappearing from circulation due to rising silver prices, the gold standard has later been interpreted as a quest for monetary discipline. This discipline argument was introduced by the end of WWI as a support for a restoration of the gold standard. Its failure led to an emphasis on the need to avoid external imbalances, which came to the fore in the preparations of the Bretton Woods system. The balance argument was also central in the early discussions of a monetary union in Europe, but with the critique of Keynesianism it was superseded by the disciplinary argument which became determinant for the design of EMU. Key words: exchange rates, Europe, gold standard, EMU JEL code: B17, B27, F31, N13, N14

2008

Conventional wisdom has that peripheral economies had to “play by the rules of the game” under the Classical Gold Standard (1870s–1914), while core countries could get away with frequent violations. Drawing on the experience of three core economies (England, France, Germany) and seven peripheral economies (AustriaHungary, Bulgaria, Greece, Italy, Norway, Serbia, Sweden), this paper argues for a more nuanced perspective on the European periphery. Our findings, based on a VAR model and impulse response functions, suggest that the average gold drain differed substantially across peripheral economies, with Austria-Hungary and Italy playing in a league with Germany and France rather than with the other peripheral economies. We also show that some of the peripheral economies, most notably Austria-Hungary, always enjoyed enough “pulling power” via discount rate policy to reverse quickly any such gold outflow. In sum, while the experience of some peripheral economies under gold was poor and...

2009

This paper analyses the economic and monetary integration in Europe with the aim of deriving points of reference for the implementation of regional gold standard arrangements. At the example of European currency arrangements it is shown how the implementation of regional currency arrangements function as the necessary precondition for the deepening of economic integration and how stable exchange rate conditions provide the impulses not only towards financial convergence but also towards harmonization of economic policies. The sequence of European monetary and economic integration has not been from economic integration towards common monetary arrangements, but common currency arrangements have served as factual preconditions that helped to enforce economic convergence. The study of the European sequence that runs from currency arrangements first towards deeper economic integration as its consequence reveals valuable insights how a regional gold standard might work as to its impact on...

in Ögren, A. and Øksendal L-F (Eds.) The Gold Standard Peripheries – Monetary policy, adjustment and flexibility in a global setting Palgrave macmillan Publishers London, 2012

The comparative advantage of the historical profession is undoubtedly the past. Insights into the past are important for understanding the present, but do not easily translate into well-founded forecasts for the future. At the end of a volume exploring the experience of the gold standard peripheries, we are nevertheless tempted to say something on the present with possible bearings for the future. One reason for this is the timeless character of the objective under scrutiny. The scene-a world of global finance inhabited by sophisticated players and advanced instruments-might seem very different than a century ago. However, the ultimate objectives of monetary policy are much the same, to provide a stable currency and an efficient payments system. Central bankers and monetary authorities of today struggle with the same fundamental issues as their predecessors did before 1914: the maintenance of credibility, the challenges of adjustments and the desire for financial stability. Moreover, the asymmetry between core and periphery are still present: small economies continue to be regime takers with limited influence over the global regime.

Hannover Economic Papers, 2006

We estimate monetary policy rules for six central and eastern European countries (CEEC) by taking changes in the policy settings explicitly into account. Distinguishing rather fixed and more flexible exchange rate arrangements we find that for most countries exchange rates played an important role in monetary policy during the fixed exchange rate regime, whereas their influence disappears after the introduction of floating exchange rate regimes. This indicates that most countries followed their officially announced policy settings. For Slovenia and to some extent for Romania, however, we find evidence for exchange rate targeting, although they officially announced a managed float.

1995

There is a large and growing literature on the benefits and costs of moving to a single currency in Europe. Much of the literature is theoretical in nature with very little empirical evaluation of the magnitudes of effects. This paper places some quantitative magnitudes on the scale of some issues in European monetary integration. It uses the European version of the MSG2 multicountry model to evaluate the variance of a number of European variables in the face of shocks to money markets, fiscal policy and total factor productivity, under three alternative European monetary regimes: the current European monetary system; a European monetary Union with a European central bank setting monetary policy; and a system of floating exchange rates within Europe. For each type of shock we consider the adjustment to global shocks, European wide shocks, shocks in Germany and shocks in Europe excluding Germany. Within the constraints of each monetary regime we allow any unconstrained monetary instruments to be set either cooperatively between European countries or non-cooperatively where each country is allowed to set their policy instruments to maximize an objective function. We find that no monetary regime consistently dominates for all shocks and regimes are ranked differently across European economies for the same shock. Abstracting from the serious question of policy credibility, this suggests that maintaining some flexibility in the setting of monetary policy in countries could potentially be invaluable to facilitate smooth adjustment to global, regional and country specific shocks.

The European Journal of the History of Economic Thought, On line 21 July, 2021

With Jonas Ljungberg. In retrospect and erroneously the nineteenth century international gold standard was interpreted as a quest for monetary discipline. The discipline argument was introduced after WWI in support for a restoration of the gold standard. The interwar failure led to an emphasis on international balances, the argument which came to the fore in the preparations for the Bretton Woods system. The balance argument was central in the early discussions of monetary union in Europe, but with the criticism of Keynesianism the discipline argument became determinant in the design of the Economic and Monetary Union.

Revista de Economia Política

The paper aims to establish interfaces between the Great Depression of the 1930s under the Gold Standard and the recent European Crisis under the Euro. It is argued that, despite their specificities, both crises revealed the potentially harmful effects, in economic and social terms, of institutional arrangements that considerably reduce the autonomy of monetary, fiscal and exchange rate policies of participating countries, without being accompanied by increased cooperation between them, which should be led by a global (in the case of the Great Depression) or regional (in the case of the European Crisis) hegemonic power, which is not only capable of, but is also willing to act as a buyer and lender of last resort, especially in circumstances characterized by increased uncertainty, the deterioration of the general state of expectations and increased liquidity preference. In fact, central European countries in the past and peripheral European countries nowadays were effectively pushed ...

Journal of Macroeconomics, 2011

We estimate monetary policy rules for six central and eastern European countries (CEEC) by taking changes in the policy settings explicitly into account. Distinguishing rather fixed and more flexible exchange rate arrangements we find that for most countries exchange rates played an important role in monetary policy during the fixed exchange rate regime, whereas their influence disappears after the introduction of floating exchange rate regimes. This indicates that most countries followed their officially announced policy settings. For Slovenia and to some extent for Romania, however, we find evidence for exchange rate targeting, although they officially announced a managed float.