Krystina Alarcon of Fox News interviewed me this morning about why the exchange rate of the dollar and the price of gold tend to move in opposite directions. I think she did a nice job of splicing together my answers to various questions. I loved the way she started it.
I referred to the work of Lawrence H. White, George Selgin, and Christy Romer, but in her editing she didn’t use those parts.
It’s just under 3 minutes long.
READER COMMENTS
Garrett
Jul 28 2020 at 7:02pm
Why is “stability in the value of money” a good thing? How does that lead to better macroeconomic outcomes, such as faster growth in living standards and lower unemployment?
mike
Jul 28 2020 at 11:35pm
Although there are more complex answers, the short of it is “if the currency is stable – inflation low and exchange rate consistent”, then businesses, individuals, and consumers can focus on “real growth” and productivity. Making more widgets, better services, having more talented employees, better meeting consumer needs, aka actual value, instead of having to worry about financial speculation on currency, or future value due to high inflation, or worries of deflation that could cause you to have to liquidate investments due to monetary inefficencies
Jon Murphy
Jul 30 2020 at 10:01am
How much planning could you do if you don’t know what your dollars will be worth tomorrow? Or, in extreme cases like Wiemar Germany, a few minutes from now?
Thomas Hutcheson
Jul 30 2020 at 12:32pm
But “stability” sometimes implies expectation of zero change in the price level. What if that is not the optimal rate of change? [Fed supposedly thinks that the optimal rate is 2% p.a. change in the PCE index, even thou they have consistently undershot this target since 2008] How could the FEd carry out its dua mandate with a gold standard?
Jon Murphy
Jul 30 2020 at 1:53pm
Does it? Why? You can get changes in prices all the time without the value of the currency changing.
Thomas Hutcheson
Jul 28 2020 at 10:03pm
H0w would the Fed be able to target NGDP under a gold standard? Would it not require a constant moving price for gold?
Matthias Görgens
Jul 29 2020 at 11:33pm
See https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/
Have a look at George Selgin’s work for that question.
Basically given a fixed monetary base fractional reserve banking can produce the right amount of money to keep NGDP stable. And with the right regulations, profit seeking banks will do exactly that.
(For the record, Selgin doesn’t suggest going back to the gold standard these days. And the US never had such a great gold standard. But Australia, Canada and Scotland had.)
Thomas Hutcheson
Jul 30 2020 at 12:02pm
Thanks. Good to know it COULD be done, but what would be the advantage? Can we be sure it would not result in sub-optimal movement in the price level, or is the assumption that the optimal average rate of change in the PL is zero?
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