A new perspective on the Gold Standard: Inflation as a population phenomenon |
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Authors: | João Ricardo Faria Peter McAdam |
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Institution: | 1. University of Texas at El Paso, USA;2. European Central Bank, Kaiserstrasse 29, Frankfurt, Germany;3. University of Surrey, UK |
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Abstract: | The purpose of this paper is to contribute a new model of the Gold Standard, focusing on the interaction between resource scarcity and demographics. In a dynamic micro-founded model we find that: i) prices and equilibrium gold holdings increase with population (a scale effect), but decrease with the population growth rate; ii) that the Gold Standard implies deflation unless extraction resources outstrip population growth; and iii) there is no optimal quantity of money. The predictions of the model are examined using a structural VAR. Our results also shed light on debates about the viability of a return to the Gold Standard, and, more generally, on the interaction between policy variables and scarce resources. |
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Keywords: | E31 E41 |
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