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Crises and Punishment: Moral Hazard and the Pre-1914 International Financial Architecture

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  • Flandreau, Marc

Abstract

This Paper argues that the backbone of the pre-1914 international financial architecture was the concern about moral hazard. No decentralized system can leave without safeguards against free riding and this typically means that problem countries must find by themselves the means to fix their domestic problems. We review the origins of crises as well as the remedies that were commonly applied one century ago and find that the international financial world was fairly similar to the setting in which we live today, and this for the same reasons. Today, just like one century ago, in the absence of an international lender of last resort with huge regulatory powers, countries must muddle through, with the occasional - and imperfect - help of international finance.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3742.

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Date of creation: Feb 2003
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Handle: RePEc:cpr:ceprdp:3742

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Keywords: financial architecture; financial crises; moral hazard; relationship banking; self insurance;

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References

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  1. Paolo Mauro & Nathan Sussman & Yishay Yafeh, 2002. "Emerging Market Spreads: Then Versus Now," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 695-733, May.
  2. Marc Flandreau & John Komlos, 2001. "How to Run a Target Zone? Age Old Lessons from an Austro-Hungarian Experiment," CESifo Working Paper Series 556, CESifo Group Munich.
  3. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact? Lessons from the European gold standard, 1880-1914," Economic Policy, CEPR & CES & MSH, vol. 13(26), pages 115-162, 04.
  4. Fenoaltea, Stefano, 1988. "International resource flows and construction movements in the atlantic economy: the kuznets cycle in Italy, 1861–1913," The Journal of Economic History, Cambridge University Press, vol. 48(03), pages 605-637, September.
  5. Arnoud W. A. Boot & Anjan V. Thakor, 2000. "Can Relationship Banking Survive Competition?," Journal of Finance, American Finance Association, vol. 55(2), pages 679-713, 04.
  6. Michael Mussa & Miguel Savastano, 2000. "The IMF Approach to Economic Stabilization," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 79-128 National Bureau of Economic Research, Inc.
  7. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
  8. Thakor, Anjan V., 2000. "Relationship Banking," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 3-5, January.
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Cited by:
  1. Christopher M Meissner & Michael D Bordo, 2006. "The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997," WEF Working Papers 0001, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  2. Flandreau, Marc & Flores Zendejas, Juan Huitzilihuitl, 2010. "Hamlet without the Prince of Denmark: Relationship banking and conditionality lending in the London market for government debt, 1815-1913," CEPR Discussion Papers 7915, C.E.P.R. Discussion Papers.
  3. Marc Flandreau & Juan Flores, 2011. "Bondholders vs. bond-sellers? Investment banks and conditionality lending in the London market for foreign government debt, 1815-1913," Working Papers 0002, European Historical Economics Society (EHES).
  4. Bordo, Michael D. & Meissner, Christopher M., 2006. "The role of foreign currency debt in financial crises: 1880-1913 versus 1972-1997," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3299-3329, December.

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