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Monetary policy without interest rates. Evidence from France’s Golden Age (1948-1973) using a narrative approach

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  • Eric Monnet

    ()
    (Paris School of Economics)

Abstract

Central banking in France from 1948 to 1973 was a paradigmatic example of an unconventional policy relying on quantities rather than on interest rates. Usual SVAR find no effect of policy shocks and support the common view that monetary policy was ineffective over this period. I argue that only a narrative approach is able to account for the peculiarity and complexity of quantitative controls on money and credit. Using archival evidence, I measure monetary policy stance with a dummy variable denoting restrictive episodes. Impulse response functions then show standard patterns; monetary policy shocks have a strong and long lasting effect. These results offer a revisionist account of postwar monetary policy under Bretton Woods and before the Great Inflation. They also suggest that quantities of money and credit can play a greater role than their prices in the adjustment process of the economy.

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Bibliographic Info

Paper provided by European Historical Economics Society (EHES) in its series Working Papers with number 0032.

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Length: 75 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:hes:wpaper:0032

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Keywords: monetary policy; credit controls; VAR; narrative approach; liquidity puzzle; Banque de France; Bretton Woods;

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  1. Bagliano, Fabio-Cesare & Favero, Carlo A, 1997. "Measuring Monetary Policy with VAR Models: An Evaluation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1743, C.E.P.R. Discussion Papers.
  2. Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," BIS Working Papers 363, Bank for International Settlements.
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  5. Leeper, Eric M., 1997. "Narrative and VAR approaches to monetary policy: Common identification problems," Journal of Monetary Economics, Elsevier, Elsevier, vol. 40(3), pages 641-657, December.
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  8. Mehrotra, Aaron, 2005. "Exchange and interest rate channels during a deflationary era - Evidence from Japan, Hong Kong and China," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 17/2005, Bank of Finland, Institute for Economies in Transition.
  9. Benati, Luca & Goodhart, Charles, 2010. "Monetary Policy Regimes and Economic Performance: The Historical Record, 1979-2008," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 21, pages 1159-1236 Elsevier.
  10. Cúrdia, Vasco & Woodford, Michael, 2011. "The central-bank balance sheet as an instrument of monetarypolicy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(1), pages 54-79, January.
  11. Benoît Mojon, 1998. "Monetary Policy Under a Fixed Exchange Rate Regime, the Case of France 1987-1996," Working Papers 1998-14, CEPII research center.
  12. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number frie63-1.
  13. Stefano Battilossi & James Foreman-Peck & Gerhard Kling, 2008. "European business cycles and economic policy, 1945-2007," Working Papers in Economic History wp08-13, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
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