Key Findings
Impact on Unemployment
A one percentage point monetary tightening led to a 0.9 percentage point increase in unemployment during the classical gold standard period
Effect on Inflation
Monetary tightening of one percentage point resulted in a 3.1 percentage point decrease in inflation
Economic Volatility
Monetary policy shocks accounted for about one-third of macroeconomic volatility, explaining 33% of unemployment and 34% of inflation fluctuations
Bank Rate Determinants
- Initial Bank Rate had a negative effect, showing mean reversion tendency
- German discount rate changes had stronger impact than French rates
- Exchange rates with major trading partners significantly influenced policy
Monetary Policy Response
- Bank Rate increased by 1.09 percentage points on impact
- Effect was short-lived, persisting only in first quarter
- Shows roughly one-for-one relationship between shock and Bank Rate
Macroeconomic Effects
- Unemployment response peaked after 18 months
- Inflation declined most significantly around 15 months
- Effects were statistically significant between 9-22 months
Contribution and Implications
- First study to apply narrative approach to monetary policy during classical gold standard period
- Resolves the "price puzzle" found in previous studies by properly accounting for policy endogeneity
- Demonstrates that monetary policy had substantial real economic effects even under the gold standard
- Shows importance of using real-time data when analyzing historical monetary policy
Data Sources
- Bank Rate determinants chart based on Table 1 regression coefficients
- Policy response visualization based on impulse response functions from baseline VAR model
- Macroeconomic effects chart constructed from peak effects reported in text and Figure 4
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