Gold Monetization and Gold Discipline

Abstract

Gold and its price have emerged as frequent topics of both academic and government debate.² Public attention, focused on the gold market since gold’s price began fluctuating violently in 1980 and 1981, has turned to gold as a possible means of removing some discretion inherent in the current fiat money system. Since lack of adherence to monetary rules can lead to problems of dynamic policy inconsistency, academic economists have begun seriously to reconsider monetary standards based either on gold or on some other commodity as politically feasible methods of establishing rules.³

The views presented in this paper are those of the authors and do not necessarily represent the views of the Governors of the Federal Reserve or other members of their staff. We would like to thank the National Science Foundation for financial support. Helpful comments were given by Dale Henderson, Jeff Frankel, Ken Rogoff and various participants in seminars at Rice University of Pennsylvania, MIT, the University of California at Berkeley, the Board of Governors of Federal Reserve, and the University of South Carolina. The extensive comments of an anonymous referee proved enormously useful.