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Can Government Gold Be Put To Better Use?: Qualitative And Quantitative Effects Of Alternative Government Policies

Board of Governors of the Federal Reserve System IFPD No. 582

42 Pages Posted: 17 Jun 1997  

Dale W. Henderson

Federal Reserve Board

John S. Irons

Amherst College - Department of Economics

Stephen W. Salant

University of Michigan; Resources for the Future

Sebastian Thomas

University of Chicago

Abstract

Gold has both private uses (depletion uses and service uses) and government uses. It can be obtained from mines with high extraction costs and quantitatively the gain in welfare and its distribution. Any policy in a class maximizes welfare from private uses. One policy involves selling all government gold immediately. Another involves lending all remaining government gold in every period and selling government gold gradually after some future time. Government uses might require gold ownership but not gold storage. If so, any loss in welfare from government uses would be much smaller under the policy involving lending and selling gradually. We construct and calibrate a model of the gold market. We prove that governments always obtain more revenue by making their gold available sooner. For a representative set of parameters, there is a gain in total welfare (discounted economic surplus) of $130 billion (1997 dollars) if governments act now instead of twenty years from now. Before any redistribution, governments gain $128 billion, and the private sector gains $2 billion. According to our measure, a large share of the gain (37%) comes from removing the production inefficiency.

JEL Classification: Q3, Q38, F3, F33

Suggested Citation

Henderson, Dale W. and Irons, John S. and Salant, Stephen W. and Thomas, Sebastian, Can Government Gold Be Put To Better Use?: Qualitative And Quantitative Effects Of Alternative Government Policies. Board of Governors of the Federal Reserve System IFPD No. 582. Available at SSRN: https://ssrn.com/abstract=38760 or http://dx.doi.org/10.2139/ssrn.38760

Dale W. Henderson (Contact Author)

Federal Reserve Board ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2343 (Phone)
202-736-5638 (Fax)

John S. Irons

Amherst College - Department of Economics ( email )

P.O. Box 5000
Amherst, MA 01002-5000
United States
413-542-8422 (Phone)
413-542-2090 (Fax)

Stephen W. Salant

University of Michigan ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-2370 (Phone)
313-764-2769 (Fax)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Sebastian Thomas

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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