Post by Gold price USD EUR on Jul 23, 2020 11:08:08 GMT
Hi JP,
I was hoping to pick your brain on a quote from Robert Mundell on the gold price. In this lecture www.columbia.edu/~ram15/LBE.htm Mundell says in 1997:
"The more countries start to think about gold as an index, as a warning signal of inflation, the more the monetary authority will try to keep the price of gold from rising. Imagine that tomorrow the price of gold rises form $350 to $400. Don't you think that immediately the Fed will see that as a signal of an increase in inflationary expectations and the need to tighten? Europe has already done that. There are long periods when it appears that Europeans have been stabilizing gold whenever the dollar has been depreciating against gold. This will be a major factor in moderating the exchange rate fluctuations between these two great blocks. This is vital to Europe, because nothing could make Europe more uncomfortable than to have big fluctuations in the Dollar-Euro exchange rate. Looking at gold would be one way to circumscribe these fluctuations."
I understand the US adjusted its monetary policy when the gold price, say, went up in the 1980s and 1990s. A higher gold price would signal higher inflation and so the Fed would tighten.
But I'm not sure what Mundell means with "There are long periods when it appears that Europeans have been stabilizing gold whenever the dollar has been depreciating against gold." Does he mean Europe was intervening in the gold market (buying/selling gold) to manage the dollar-euro rate? (When USD devalued versus gold, EUR did too, to manage USDEUR.) Or does he mean Europe adjusted its monetary policy based on the gold price just like the US (and thus "stabilized" the price) and this automatically managed the dollar-euro rate?
Tx!
Jan
I was hoping to pick your brain on a quote from Robert Mundell on the gold price. In this lecture www.columbia.edu/~ram15/LBE.htm Mundell says in 1997:
"The more countries start to think about gold as an index, as a warning signal of inflation, the more the monetary authority will try to keep the price of gold from rising. Imagine that tomorrow the price of gold rises form $350 to $400. Don't you think that immediately the Fed will see that as a signal of an increase in inflationary expectations and the need to tighten? Europe has already done that. There are long periods when it appears that Europeans have been stabilizing gold whenever the dollar has been depreciating against gold. This will be a major factor in moderating the exchange rate fluctuations between these two great blocks. This is vital to Europe, because nothing could make Europe more uncomfortable than to have big fluctuations in the Dollar-Euro exchange rate. Looking at gold would be one way to circumscribe these fluctuations."
I understand the US adjusted its monetary policy when the gold price, say, went up in the 1980s and 1990s. A higher gold price would signal higher inflation and so the Fed would tighten.
But I'm not sure what Mundell means with "There are long periods when it appears that Europeans have been stabilizing gold whenever the dollar has been depreciating against gold." Does he mean Europe was intervening in the gold market (buying/selling gold) to manage the dollar-euro rate? (When USD devalued versus gold, EUR did too, to manage USDEUR.) Or does he mean Europe adjusted its monetary policy based on the gold price just like the US (and thus "stabilized" the price) and this automatically managed the dollar-euro rate?
Tx!
Jan