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Filtering by: Creator Rolnick, Arthur J., 1944- Remove constraint Creator: Rolnick, Arthur J., 1944- Series Staff report (Federal Reserve Bank of Minneapolis. Research Department) Remove constraint Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)

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  • 0z708w57j?file=thumbnail
    Creator: Rolnick, Arthur J., 1944- and Weber, Warren E.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 175
    Abstract:

    Our study examines whether there is a systematic relationship between the monetary standard under which a country operates and the rate of inflation it experiences. It also explores whether there are other properties of inflation, money, and output that differ between economies operating under a commodity standard and economies operating under a fiat standard. The basis for our study is price, money, and output data for 15 countries that have operated under both types of monetary standards. For each of these countries the data cover 80 years, and for most the data cover more than 100 years. With these data we are able to establish several facts about the differences in inflation, money growth, and output growth between economies operating under commodity standards and those operating under fiat standards. Specifically, we find that the following facts emerge when comparing commodity standards to fiat standards: inflation, money growth, and output growth are all lower; growth rates of monetary aggregates are less highly correlated with each other; growth rates of monetary aggregates are less highly correlated with inflation; and growth rates of monetary aggregates are more highly correlated with output growth.

  • 37720c855?file=thumbnail
    Creator: Rolnick, Arthur J., 1944- and Weber, Warren E.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 097
    Abstract:

    This paper explains why the risky notes of banks established during the Free Banking Era (1837–63) were demanded even when relatively safe specie (gold and silver coin) was an alternative. Free bank notes were demanded because they were priced to reflect the expected value of their backing. The empirical evidence supports this explanation. Specifically, in New York, Wisconsin, and Indiana the expected value of backing was sufficient for free bank notes to circulate at par, which they did. In Minnesota the backing for notes was very poor: they exchanged well below par, being treated as small-denomination securities.

  • Dr26xx58m?file=thumbnail
    Creator: Rolnick, Arthur J., 1944- and Weber, Warren E.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 088
    Abstract:

    The claim that bad money drives out good is one of the oldest and most cited in economics. Economists refer to this claim as Gresham’s law. Yet despite its seemingly universal acceptance, this claim does not warrant its status as a law. We find it has no convincing explanations and many overlooked exceptions. We propose an alternative hypothesis based on the costs of using a medium of exchange at a nonpar price: small-denomination currency undervalued at the mint tends to disappear from circulation while large-denomination currency usually circulates at premium. Examining a variety of historical episodes when market and legal prices were different, we find our “law” can explain history much better than Gresham’s.

  • X920fw93c?file=thumbnail
    Creator: Rolnick, Arthur J., 1944- and Weber, Warren E.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 080
    Abstract:

    The purpose of this paper is to begin a reevaluation of the Free Banking Era by developing and examining individual bank information on the population of banks which existed under the free banking laws in four states. This information allows us to determine the number of free banks which failed and to estimate the resulting losses to their note holders. While the new evidence suggests there were problems with free banking, it presents a serious challenge to the prevailing view that free banking led to financial chaos.

  • 7w62f8391?file=thumbnail
    Creator: Rolnick, Arthur J., 1944-
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 041
    Abstract:

    As the CD market has become an important source of bank funds, it has also become an important market for policymakers to understand. But so far model builders have not recognized the significance of assuming that new and old CDs are perfect substitutes. Therefore, they have misused the assumption, discarded relevant data, and ignored evidence inconsistent with perfect substitution. This study shows that models of the CD market should not treat new and old issues as perfect substitutes and that they should not drop observations when market rates are above the Regulation Q ceiling.

  • C821gj884?file=thumbnail
    Creator: Miller, Preston J. and Rolnick, Arthur J., 1944-
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 049
    Abstract:

    The analyses of fiscal and monetary policies that the Congressional Budget Office (CBO) provides Congress tend to be biased, encouraging the use of activist stabilization policies. The CBO’s virtual neglect of economic uncertainties and its emphasis on very short time horizons make active policies appear much more attractive than its own model implies. Moreover, the CBO’s adoption of the macroeconometric approach fundamentally biases its analyses. Macroeconometric models do not remain invariant to changes in policy rules and are mute on the implications of alternative policies for efficiency and income distribution. The rational expectations equilibrium approach overcomes these difficulties and implies that less activist and less inflationary policies are desirable.

  • 41687h563?file=thumbnail
    Creator: Rolnick, Arthur J., 1944- and Weber, Warren E.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 079
    Abstract:

    In this paper we propose and test a new explanation of bank behavior during the Free Banking Era, 1837–63. Arguing against the view that free bank failures were due to fraud, we claim that they were caused by exposure to term structure risk. Testing this new explanation with a new and extensive body of data, we find strong support for it: periods of falling bond prices correspond to the periods with most of the free bank failures. The new data do not support the view that fraud caused the failures.