Is Deflation depressing? Evidence from the Classical Gold Standard
Bibliographic record
Abstract
We distinguish between good and bad deflations.In the former case, falling prices may be caused by aggregate supply (possibly driven by technology advances) increasing more rapidly than aggregate demand.In the latter case, declines in aggregate demand outpace any expansion in aggregate supply.This was the experience in the Great Depression (1929-33), the recession of 1919-21, and may be the case in Japan today.In this paper we focus on the price level and growth experience of the United States and Canada, 1870-1913.Both countries adhered to the international gold standard.This meant that the domestic price level was largely determined by international (exogenous) forces.In addition, neither country had a central bank which could intervene in the gold market to shield the domestic economy from external conditions.We proceed by identifying separate 'supply' shocks, money supply shocks and demand shocks using a Blanchard-Quah methodology.We model the economy as a small open economy on the gold standard and identify the shocks by imposing long run restrictions on the impact of the shocks and on output prices.We then do a historical decomposition to examine the impact of each shock on output.The results for the U.S. are clear: the different rates of change in the price levels before and after 1890 are attributed to different monetary shocks, but these shocks explain very little of output growth or volatility, which is almost entirely a response to 'supply' shocks.For Canada the results are murkier.As in the U.S., the money supply shocks before 1896 are predominantly negative and after that are largely positive.However, they are non-neutral, and relative to the U.S., money supply shocks play a larger role in determining output behavior in Canada.The key conclusion of our analysis is that the simple demarcation of good vs. bad deflation, where either prices fall because of a positive supply shock, or prices fall because of a negative demand (money) shock does not capture the complexity of the historical experience of the pre-1896 period.Indeed, we find that prices fell as a result of a combination of negative money supply shocks and positive supply shocks.
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How this classification was reachedexpand
Full frame machine prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. The Gemma side is a direct model label for every work in the frame, read from the title-only record. The Codex side is a classifier learned from the 10,348 direct Codex labels and calibrated to design-weighted sample rates; fields without enough sample support carry no Codex call. Candidate is the union of the two sides; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels.
Distilled classifier scores by category (both heads)
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.018 | 0.066 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.001 | 0.001 |
| Bibliometrics | 0.003 | 0.004 |
| Science and technology studies | 0.001 | 0.007 |
| Scholarly communication | 0.004 | 0.004 |
| Open science | 0.001 | 0.004 |
| Research integrity | 0.003 | 0.003 |
| Insufficient payload (model declined to judge) | 0.014 | 0.001 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one source (direct Gemma or distilled Codex), not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".