Chronicles of a deflation unforetold
By: François  R. Velde
Contributors: Federal Reserve Bank of Chicago. Research Department
Series: Working paper series -- WP-2006-12; Working paper series (Federal Reserve Bank of Chicago. Research Department : Online) -- WP-2006-12.
Publisher: Federal Reserve Bank of Chicago
Published: 2006
Place of publication: Chicago, Ill.]
Language: eng
Format: [electronic resource] /
Description: "Suppose the nominal money supply could be cut literally overnight by, say, 20%.  What would happen to prices, wages, output? The answer can be found in 1720s France, where just such an experiment was carried out, repeatedly.  Prices adjusted instantaneously and fully on one market only, that for foreign exchange.  Prices on other markets (such as commodities) as well as prices of manufactured goods and industrial wages fell slowly, over many months, and not by the full amount of the nominal reduction.  Coincidentally or not, the industrial sector (as represented by manufacturing of woolen cloths) experienced a contraction of 30%.  When the government changed course and increased the nominal money supply overnight by 20%, prices responded much more, and the woolen industry rebounded"--Federal Reserve Bank of Chicago web site.
Notes: Title from PDF file as viewed on 1/11/2007.

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