A Model of the Bimetallic System
IMF Working Papers, December 1, 1995
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- A Model of the Bimetallic System
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Bibliographic details
- Authors: S. E Oppers
- Published: December 1, 1995
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451856392.001
Summary
- This paper formalizes Irving Fisher’s century-old model of bimetallism and adds the important “disequilibrium” dynamics to deal with the long periods during which bimetallic countries were on effective monometallic standards.
- It resolves a long standing puzzle in the bimetallic literature regarding the remarkable stability of the gold/silver price ratio in the nineteenth century by modeling the bimetallic mint ratio as a regulating barrier to the gold/silver price ratio.
- It provides a clean-cut example of a target-zone model that—in contrast to other such models in the literature—exhibits the main predicted nonlinearities in the data.
- This is a Paper on Policy Analysis and Assessment and the author(s) would welcome any comments on the present text.
- Citations should refer to a Paper on Policy Analysis and Assessment of the International Monetary Fund, mentioning the author(s) and the date of issuance.
- The views expressed are those of the author(s) and do not necessarily represent those of the Fund.
Main findings and contributions
- Formalization of Irving Fisher’s model of bimetallism with added “disequilibrium” dynamics to capture long monometallic-effective periods.
- Explanation for the nineteenth-century stability of the gold/silver price ratio via the mint ratio acting as a regulating barrier.
- Empirical relevance: provides a target-zone model that exhibits the main predicted nonlinearities in the data, unlike other models in the literature.
Methodology and analytical approach
- Uses a formal model of bimetallism incorporating disequilibrium dynamics.
- Treats the bimetallic mint ratio as a regulating barrier to the market gold/silver price ratio.
- Positions the model as an example of a target-zone framework with nonlinear dynamics visible in the data.
Policy implications and assessment
- The paper is presented as a Paper on Policy Analysis and Assessment, intended to inform debate and elicit comments from readers.
- No prescriptive policy actions are specified in the summary text; emphasis is on resolving theoretical puzzles and providing an empirically-relevant modeling framework.
Subject matter and keywords
- Subject: Arbitrage, Commodities, Gold, Metals, Monetary base, Money, Silver
- Keywords: Arbitrage, bullion market, bullion-market trader, FRANC-POUND interest rate differential, Gold, gold coin, interest rate, London ratio, market ratio, Metals, mint ratio, Monetary base, money supply, Silver, WP