Interest rate, price level, and the inflation rate: Evidence from the UK during the gold standard regimes

This paper empirically investigates the Gibson Paradox and the Fisher Effect for the UK during different metallic and non-metallic regimes. The paper applies long-span monthly data on the long-term interest rate and the price index from 1790 to 1931. The ARDL cointegration is employed to study the long-term relationship. Significant evidence is provided for the paradox during the uninterrupted gold standard era of the UK (1821-1914). We also find evidence of the paradox during the short-term gold exchange standard era (1925-1931). Further results also confirm the Fisher Effect during the 1821-1914 period, providing some backing to its ability to explain the paradox. This is further asserted by the short-run mutual influence between the rate of interest and the inflation rate.