Dynamic consequences of stabilization policies based on a return to a goldstandard

Prior to the 1930's rapid inflations often occurred in conjunction with war time Finance, and were commonly halted by imposing or re-imposing a gold st andard. In a general equilibrium framework I study the consequences of diff erent methods of gold resumption for the dynamic path of the economy, inclu ding the behavior of the price level and the welfare of economic agents. In particular, I examine the implications of varying (a) the length of time b etween the end of the war and the return to gold; (b) the par at which gold convertibility is re-established; and (c) whether or not the government ac cumulates gold reserves over an extended period of time before the stabiliz ation. I show that a gradual post-war deflation, which permits resumption of gold convertibility as scheduled, can occur even if the money supply is not cont racted and the government does not actively accumulate gold reserves. Furth ermore, different policy choices regarding the resumption plan affect not o nly the speed of postwar deflation, but also the speed of the wartime infla tion. In terms of welfare, I find that wartime generations unanimously pref er rapid resumption at high parity, while among postwar generations borrowe rs and lenders often have opposing interests, but on average they tend to b enefit from delaying resumption and devaluing the currency. (C) 2001 Academ ic Press.