The Gold Standard, Monetary Policy, and the Banking School--Currency School Debate

This paper develops a model of the impact of monetary policy on the price level under a gold standard. The model is more consistent with the historical record than are previous models developed by Barro (1979) and McCallum (1989). In particular, it will be demonstrated that under a gold standard, monetary policy can have a permanent effect on the price level. The model is then used to evaluate the nineteenth century debate between proponents of the Banking School and the Currency School.