Discussion paper

DP11952 Pulling up the Tarnished Anchor: The End of Silver as a Global Unit of Account

We use the demise of silver-based standards in the 19th century to explore price dynamics when a commodity-based money ceases to function as a global unit of account. We develop a general equilibrium model of the global economy with gold and silver
money. Calibration of the model shows that silver ceased functioning as a global price anchor in the mid-1890s—the price of silver is positively correlated with agricultural commodities through the mid-1890s, but not thereafter. In contrast to Fisher (1911)
and Friedman (1990), both of whom predict greater price stability under bimetallism, our model suggests that a global bimetallic system in which the gold price of silver fluctuates has higher price volatility than a global monometallic system. We confirm
this result using agricultural commodity price data for 1870-1913.

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Citation

Mitchener, K, M Weidenmier and R Fernholz (2017), ‘DP11952 Pulling up the Tarnished Anchor: The End of Silver as a Global Unit of Account‘, CEPR Discussion Paper No. 11952. CEPR Press, Paris & London. https://cepr.org/publications/dp11952