Explorations in Economic History: A Test of Structural Break in the US Money Supply Data

Abstract

In a televised address to the Nation on Sunday evening, August 15, 1971, President Richard Nixon announced the “temporary” suspension of the dollar’s convertibility into gold. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, Nixon’s announcement of the closing of the gold window greatly signified the end of the Bretton Woods system. We argue that the federal policies to supply money under the gold exchange standard prevalent before closing the gold window and the fiat currency regime that replaced the gold exchange standard after closing the gold window are substantially different. In this paper, we provide evidence of structural breaks in the M1 and M2 measures of money supply time series data due to the policy switch from the gold exchange standard to the fiat currency system.