Philly Fed researchers publish paper on the Gold Standard

[pmbug]

Long-run price stability could be a key feature of the gold standard, researchers with the Federal Reserve Bank of Philadelphia find.

In their working paper, published in February, Jesús Fernández-Villaverde and Daniel Sanches explore how the gold standard would operate as a monetary framework in a hypothetical small open economy ...

https://www.centralbanking.com/cent...ld-stabilise-prices-philadelphia-fed-research

Here's the paper:

We present a micro-founded monetary model of a small open economy to examine the behavior of money, prices, and output under the gold standard. In particular, we formally analyze Hume’s celebrated price-specie flow mechanism. Our framework incorporates the influence of international trade on the money supply in the Home country through gold flows. In the short run, a positive correlation exists between the quantity of money and the price level. Additionally, we demonstrate that money is non-neutral during the transition to the steady state, which has implications for welfare. While the gold standard exposes the Home country to short-term fluctuations in money, prices, and output caused by external shocks, it ensures long-term price stability as the quantity of money and prices only temporarily deviate from their steady-state levels. We discuss the importance of policy coordination for achieving efficiency under the gold standard and consider the role of fiat money in this environment. We also develop a version of the model with two large economies.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4744246

 

[mmm....shiney!]

Must be a a recent release of a paper from 2023: https://www.sas.upenn.edu/~jesusfv/A_Model_Gold_Standard.pdf

It's not exciting nor easy to understand, but basically from my understanding there is a school of thought that maintains that a gold standard brings long term price control yet short term variability in the levels of prices ie there are periods of inflation and periods of deflation. It has been argued that that has both benefits but that it also has disadvantages. Others argue (eg Schwartz) that even long term price stability was not obvious under a gold standard.

 

[mmm....shiney!]

Same authors, earlier paper from 2022: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2022/wp22-33.pdf

Abstract
The gold standard emerged as the international monetary system by the end of the 19th century. We formally study its properties in a micro-founded model and find that the scarcity of the world gold stock not only results in a suboptimal output of goods that are purchased with money but also subjects the domestic economy of a country to external shocks. The creation of inside money in the form of private credit instruments adds to the money supply, usually resulting in a Pareto improvement, but opens the door to the international transmission of banking crises. These properties of the gold standard can explain the limited adherence by peripheral countries because of the potential risks to their economies. We argue that the gold standard can be sustainable at the core but not at the periphery.