This paper examines the controversy concerning the relative desirability of fixed versus flexible exchange rates by examining whether a country can achieve a smaller variance of domestic output around its full employment path operating under an exchange rate rule or under a money supply rule. The paper finds that neither policy will always dominate the other. However, it does find that if shocks in one market of the economy are large relative to shocks to other markets, then one type of rule can be shown to dominate the other.

This paper examines the controversy concerning the relative desirability of fixed versus flexible exchange rates by examining whether a country can achieve a smaller variance of domestic output around its full employment path operating under an exchange rate rule or under a money supply rule. The paper finds that neither policy will always dominate the other. However, it does find that if shocks in one market of the economy are large relative to shocks to other markets, then one type of rule can be shown to dominate the other.

We examine the behavior of money, inflation, and output under fiat and commodity standards to better understand how changes in monetary policy affect economic activity. Using long‐term historical data for 15 countries, we find that, under fiat standards, the growth rates of various monetary aggregates are more highly correlated with inflation and with each other than under commodity standards. Money growth, inflation, and output growth are also higher. In contrast, we do not find that money growth is more highly correlated with output growth under one standard than under the other.

Gresham's law often takes two forms: the rule that bad money drives out good money and a qualified version of that rule that requires a fixed exchange rate between the two monies. Yet history contradicts both of these forms. In fact, the exchange rate has never been fixed, and we doubt it ever could be. We propose a new version of the law that is more feasible and more consistent with the evidence. It requires a fixed transaction cost of using currencies at nonparprices for the rule to apply. Then denomination determines the fate of good money.

Gresham's law often takes two forms: the rule that bad money drives out good money and a qualified version of that rule that requires a fixed exchange rate between the two monies. Yet history contradicts both of these forms. In fact, the exchange rate has never been fixed, and we doubt it ever could be. We propose a new version of the law that is more feasible and more consistent with the evidence. It requires a fixed transaction cost of using currencies at nonparprices for the rule to apply. Then denomination determines the fate of good money.

Bimetallism has been the subject of considerable debate: Was it a viable monetary system? Was it desirable? In our model, the amounts of each metal are split between coined metal, satisfying a cash‐in‐advance constraint, and uncoined metal, yielding utility. The ratio of the monies in the cash‐in‐advance constraint is endogenous. Bimetallism is feasible: we find a continuum of steady states indexed by the constant exchange rate of the monies. Bimetallism is not desirable: among steady states, welfare under monometallism is higher than under any bimetallic equilibrium. Long‐run trends in gold and silver production placed limits on the maintenance of bimetallism at any given ratio, but its sudden collapse in 1873 remains a puzzle.