This paper investigates the extent to which the high macroeconomic volatility experienced in the classical Gold Standard era of US history can be attributed to the monetary policy regime per se as distinct from other shocks. For this purpose, we estimate a small dynamic stochastic general equilibrium model for the classical Gold Standard era. We use this model to conduct a counterfactual experiment to assess whether a monetary policy conducted on the basis of a Taylor rule characterizing the Great Moderation data would have led to different outcomes for macroeconomic volatility and welfare in the Gold Standard era. The counterfactual Taylor rule significantly reduces inflation volatility, but at the cost of higher real-money and interest-rate volatility. Output volatility is very similar. The end result is no welfare improvement.

This paper investigates the causal effects of monetary policy on the British economy during the classical gold standard. Based on the narrative identification approach, I find that following a one percentage point monetary tightening, unemployment rose by 0.9 percentage points, while inflation fell by 3.1 percentage points. In addition, monetary policy shocks accounted for a third of macroeconomic volatility.

Government bond spreads as of October 30, 2024, varied widely among the largest economies when compared to German Bunds and U.S. Treasury notes. Australia's bond spread was the higest against both, with 217.6 basis points (bps) over Germany and 27.1 bps over the U.S. In contrast, China and Japan display negative spreads, with Japan having the lowest spread at -328.1 bps against U.S. Treasuries. Italy, the United Kingdom, and Canada showed moderate spreads. Positive bond spreads indicate that a country’s government bonds have higher yields compared to the benchmark bonds - in this case, the German Bunds and U.S. Treasury notes. Higher spreads often signal perceived higher risk or economic uncertainty, as investors demand greater returns for holding these bonds. expectations. Conversely, negative spreads mean that these bonds offer lower yields than the benchmark. Negative spreads often indicate strong investor confidence, safe-haven status, or lower inflation expectations, as investors are willing to accept lower returns for the perceived stability of these bonds.