The Inter-War Gold Exchange Standard: Credibility and Monetary Independence

63 Pages Posted: 20 Aug 2001 Last revised: 23 Oct 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Ronald MacDonald

University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 2001

Abstract

In this paper we analyze the operation of the inter-war gold exchange standard to see if the evident credibility of the system conferred on participating central banks the ability to pursue independent monetary policies. To answer this question we econometrically analyze two key parity, or arbitrage, conditions, namely uncovered interest rate parity and a yield gap relationship. We find that there were both long- and short-run deviations from the arbitrage conditions. The use to which this policy independence was put is analyzed in the context of a multivariate system, which includes reaction function variables.

Suggested Citation

Bordo, Michael D. and MacDonald, Ronald R., The Inter-War Gold Exchange Standard: Credibility and Monetary Independence (August 2001). NBER Working Paper No. w8429. Available at SSRN: https://ssrn.com/abstract=280282

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

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Ronald R. MacDonald

University of Strathclyde in Glasgow - Department of Economics ( email )

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Government of New Zealand - Department of Economics

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