INFLATION AND MONEY GROWTH UNDER THE INTERNATIONAL GOLD STANDARD, 1850-1913

This paper studies the interaction of the money supplies and price lev els of twelve European countries over the period 1850 to 1913. Employi ng both correlation and cointegration tests, we show that the gold sta ndard appears to have been associated with diminishing inflation rates and increasing integration of price levels across countries during th is period. Curiously, the rates of growth of money supplies of those c ountries for which data exist do not show the same pattern: correlatio ns are low and there is little cointegration. We attribute this result to attempts by the various countries to circumvent the system and to differences in the demand for money across these countries; in so doin g, we use the framework of the monetary approach to the balance of pay ments.