Working Paper: NBER ID: w15670
Authors: Kris James Mitchener; Marc D. Weidenmier
Abstract: There is a long-standing debate as to whether the Fisher effect operated during the classical gold standard period. We break new ground on this question by developing a market-based measure of general inflation expectations during the gold standard. Since the gold-silver price ratio was widely used to track inflation during the gold standard period, we are able to derive a measure of inflation expectations using the interest-rate differential between Austrian silver and gold perpetuity bonds with identical terms. Our empirical evidence suggests that inflation expectations exhibited significant persistence at the weekly, monthly, and annual frequencies. We also find that market participants updated long-run inflation expectations following short-run changes in the forward silver price of gold. The evidence suggests the operation of a long-run Fisher effect during the classical gold standard period.
Keywords: Fisher effect; Inflation expectations; Gold standard; Austrian bonds
JEL Codes: E4; G1; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation expectations (E31) | persistence of inflation expectations (E31) |
| forward silver price (G13) | short-run inflation expectations (E31) |
| monetary policy (E52) | inflation perceptions among investors (E31) |
| long-run inflation expectations (E31) | nominal interest rates (E43) |
| short-run inflation expectations (E31) | long-run inflation expectations (E31) |