This paper investigates the link between external monetary disturbances and the domestic economy in England during the great period of the Gold Standard (1893-1914). In the classical description of the Gold Standard, an external monetary disturbance would typically take the form of a gold outflow, to which the Bank of England would react by a restrictive shift in monetary policy. This paper tests this sequence with monthly data using the structural VAR methodology. It is found that the links between gold flows and domestic monetary variables like interest rates or base money are statistically very significant, and it is suggested that expectations played an important role therein. However this link was small in magnitude, so that gold flows were not a major source of disturbance in domestic activity.
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