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Barsky, Robert B. and Summers, Lawrence H. "Gibson's Paradox and the Gold Standard," The Journal of Political Economy, Volume 96, Issue 3 (Jun., 1988), pp. 528-550.This paper contributes a new element to the explanation of the Gibson paradox, the puzzling correlation between interest rate and the price level seen during the gold standard period. A shock that raises the underlying real rate of return in the economy reduces the equilibrium relative price of gold and, with the nominal price of gold pegged by the authorities, must raise the price level. The mechanism involves the allocation of gold between monetary and nonmonetary uses. Barsky and Summers (1988) explanation helps to resolve some important anomalies in previous work and is supported by empirical evidence along a number of dimensions.
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