Chadha, Jagjit S. and Perlman, Morris (2014) Was the Gibson Paradox for real? A Wicksellian study of the relationship between interest rates and prices. Financial History Review, 21 (2). 139 - 163. ISSN 0968-5650
Full text not available from this repository.Abstract
We examine the relationship between prices and interest rates for seven advanced economies in the period up to 1913, emphasising the UK. There is a significant long-run positive relationship between prices and interest rates for the core commodity standard countries. Keynes ([1930] 1971) labelled this positive relationship the 'Gibson Paradox'. A number of theories have been put forward as possible explanations of the paradox but they do not fit the long-run pattern of the relationship. We find that a formal model in the spirit of Wicksell (1907) and Keynes ([1930] 1971) offers an explanation for the paradox: where the need to stabilise the banking sector's reserve ratio, in the presence of an uncertain 'natural' rate, can lead to persistent deviations of the market rate of interest from its 'natural' level and consequently long-run swings in the price level.
| Item Type: | Article |
|---|---|
| Official URL: | https://www.cambridge.org/core/journals/financial-... |
| Additional Information: | © 2014 European Association for Banking and Financial History e.V. |
| Divisions: | LSE |
| Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance |
| JEL classification: | B - Schools of Economic Thought and Methodology > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes; Keynesian; Post-Keynesian |
| Date Deposited: | 19 Aug 2014 14:54 |
| Last Modified: | 13 Nov 2024 00:09 |
| URI: | http://eprints.lse.ac.uk/id/eprint/59064 |
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