H. Stokes, UIC - Department Friday Seminar
The “Thin Film of Gold” – Interest Rates and Gold Flows in the Classical Gold Standard Era*
Houston H. Stokes
Department of Economics
University of Illinois at Chicago
Hugh M. Neuburger
Abstract: This paper employs VAR modeling methods to investigate empirally both the relationship between gold inflows and outflows in the UK, Germany and France and the extent of central bank management of the discount rate in their respective countries by an analysis of the dynamic pattern of discount rates in the three countries. The results support the hypothesis that UK gold export shocks led to increases in the London discount rate that lowered subsequent UK gold losses and also led to increases in the Berlin and Paris discount rates. The latter finding suggests that, far from functioning in an automatic way, the gold standard in the period 1988 – 1908 was characterized by substantial central bank coordination led by the Bank of England that is consistent with efforts to manage the effects of naturally occurring gold flows.