Discussion of “The French Gold Stock and the Great Deflation”
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Transcript of Discussion of “The French Gold Stock and the Great Deflation”
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Discussion of “The French Gold Stock and the Great Deflation”
James D. Hamilton
University of California, San Diego
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Consider an economy with a single produced good (potatoes)
• aggregate price level = P dollars per potato
• relative price of gold = R potatoes per ounce of gold
• dollars per ounce of gold =
dollars potatoes dollars
potato ounce of gold ounce of gold
P RPR
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Gold standard: dollars per ounce of gold (PR) is fixed
If relative price of gold (R) goes up, price level (P) must fall
dollars potatoes dollars
potato ounce of gold ounce of gold
P RPR
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Monthly wholesale prices 1923-1926
0
50
100
150
200
250
1923 1924 1925 1926 1927
France
US
UK
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Monthly wholesale prices 1923-1926
0
50
100
150
200
250
1923 1924 1925 1926 1927
France
US
UK
Belgium
Hyperinflations in Germany, Austria, Poland, Russia, Hungary
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1931: European financial distress
• Failure of Austria’s Credit-Anstalt
• Bank runs in Hungary, Czechoslovakia, Romania, Poland, Germany
Depositors outside Berlin bank, 1931
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Source: Hamilton (1988)
Private discount rates in Belgium, Switzerland, and France
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Source: Hamilton (1988)
Yields on short-term U.S. Treasury securities
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Can gold standard restore confidence out of chaos?
• If government not trustworthy without a gold standard, do you trust it to follow a gold standard?
• Britain-- no
• France and U.S.-- yes, but at a cost
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Source: Bernanke and James (1991)