Violations of the `Rules of the Game' and the Credibility of the Classical Gold Standard, 1880-1914

80 Pages Posted: 28 Jan 1998 Last revised: 6 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: July 1997

Abstract

This paper examines the recently noted finding that the Classical gold standard represented a credible, well-behaved target zone system from the perspective of the well-documented failure of countries to play by the rules of the game in the classical period. In particular, we test an hypothesis of Svensson (1994) that a credible target zone can confer on a country a degree of independence in the operation of its monetary policy. We propose a number of ways of testing this proposition and implement them for a newly created monthly data base over the period 1880-1913. We demonstrate that the Classical gold standard worked in the way predicted by Svensson's model. This would seem to have an important bearing on the kind of institutional framework required for a modern day target zone (such as the Exchange Rate Mechanism of the European Monetary System) to function effectively and, in particular, to weather speculative attacks.

Suggested Citation

Bordo, Michael D. and MacDonald, Ronald R., Violations of the `Rules of the Game' and the Credibility of the Classical Gold Standard, 1880-1914 (July 1997). NBER Working Paper No. w6115. Available at SSRN: https://ssrn.com/abstract=55166

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 )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ronald R. MacDonald

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

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
+44 141 548 3861 (Phone)

Government of New Zealand - Department of Economics

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P.O. Box 2498
Wellington
New Zealand

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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