Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278548 
Year of Publication: 
2023
Series/Report no.: 
Discussion Papers No. 23-03
Publisher: 
University of Bern, Department of Economics, Bern
Abstract: 
We argue that Gibson's paradox has nothing to do with the Gold Standard per se, and it rather originates from low-frequency variation in the natural rate of interest under certain types of monetary regimes that make inflation I(0) and (approximately) zero-mean. Although the Gold Standard is the only historical example of such a regime, Gibson's paradox is a feature of a potentially wide array of monetary arrangements. In fact, once removing the deterministic component of the drift in the price level, the paradox can be recovered from the data generated under inflation-targeting regimes. By the same token, the paradox could arise under a regime targeting the level of the money stock, whereas it would not appear under arrangements targeting the levels of either prices or nominal GDP. We show that the mechanism underlying Gibson's paradox hinges on the interaction between the Fisher equation and an asset pricing condition determining the current value of money. Our interpretation points towards inefficiencies in the actual implementation of monetary policies.
Subjects: 
Gibson's Paradox
monetary regimes
natural rate of interest
Fisher equation
Gold Standard
inflation targeting
optimal monetary policy
JEL: 
E2
E3
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.