The Equilibrium Approach to Discretionary Monetary Policy under an International Gold Standard, 1926-1932

Abstract

This paper uses the Collery-Barro equilibrium approach to the gold standard to develop a model of discretionary monetary policy under an international gold standard. Monetary policy is defined in terms of changes in the ratio of the monetary gold stock to the currency stock. This is equivalent to defining discretionary policy actions in terms of deviations from the "rules of the game." Unlike other policy indicators such as gold flows, interest rates, or monetary aggregates, the gold-reserve ratio can be used to generate a quantitative estimate of the impact of a single country's monetary policy on the world price level. Copyright 1991 by Blackwell Publishers Ltd and The Victoria University of Manchester