International Gold Flows in Gold Standard Germany: A Test of the Monetary Approach to the Balance of Payments, 1880-1911

A stylized model of the German monetary system during the period of the gold standard, 1880-1911, is developed. An equation is derived that explains German international gold and silver flows in the spirit of the monetary approach to the balance of payments. Equation estimates show that an increase...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 1988-02, Vol.20 (1), p.132
Main Authors: Sommariva, Andrea, Tullio, Giuseppe
Format: Article
Language:English
Subjects:
Balance of payments
Central banks
Gold
Gold standard
Mathematical models
Monetary systems
Regression analysis
Silver
Studies
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Summary:A stylized model of the German monetary system during the period of the gold standard, 1880-1911, is developed. An equation is derived that explains German international gold and silver flows in the spirit of the monetary approach to the balance of payments. Equation estimates show that an increase in the domestic assets of the Reichsbank led to an outflow of gold and silver, as predicted by the monetary approach. They also show that an increase in German output and in the German price level led to an inflow of gold into Germany. As predicted by the theory, foreign nominal income and the world stock of monetary gold influenced German gold and silver flows. The estimates suggest that the negative correlation between domestic and foreign assets of the central banks observed by Bloomfield (1959) is not a sufficient criterion for judging whether a central bank followed the "rules of the game" of the classical gold standard since causation was probably bi-directional.
ISSN:0022-2879
1538-4616
DOI:10.2307/1992671