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Discussion of “The French Gold Stock and the Great Deflation”

Discussion of “The French Gold Stock and the Great Deflation”. James D. Hamilton University of California, San Diego. 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

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Discussion of “The French Gold Stock and the Great Deflation”

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  1. Discussion of “The French Gold Stock and the Great Deflation” James D. Hamilton University of California, San Diego

  2. 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 =

  3. Gold standard: dollars per ounce of gold (PR) is fixed If relative price of gold (R) goes up, price level (P) must fall

  4. Monthly wholesale prices 1923-1926

  5. Monthly wholesale prices 1923-1926 Hyperinflations in Germany, Austria, Poland, Russia, Hungary

  6. 1931: European financial distress • Failure of Austria’s Credit-Anstalt • Bank runs in Hungary, Czechoslovakia, Romania, Poland, Germany Depositors outside Berlin bank, 1931

  7. Private discount rates in Belgium, Switzerland, and France Source: Hamilton (1988)

  8. Yields on short-term U.S. Treasury securities Source: Hamilton (1988)

  9. 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

  10. Source: Bernanke and James (1991)

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