Abstract
This paper investigates changes in the nature of price movements that occurred with massive adoption of the gold-standard alongside demonetization of silver during the 1870s. It identifies the direction of changes in the elasticity of the price level in terms of gold with respect to changes in the monetary gold stock, GDP, and the velocity of gold, the latter of which is also known as the inverse of portfolio demand for gold. Of greatest concern is the last of these. The velocity of gold during the period cannot be measured directly. The model employed here estimates it indirectly and shows that it exhibited tremendous downward pressure on prices once the gold standard was adopted and that the consolidation of gold at central banks greatly increased the sensitivity of prices to changes in GDP, the monetary gold stock, and the velocity of gold.
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