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Rules, Discretion or Reputation? Monetary Policies and the Efficiency of Financial Markets in Germany, 14th to 16th Centuries

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  • Oliver Volckart

Abstract

This paper examines the questions of whether and how feudal rulers were able to credibly commit to preserving monetary stability, and of which consequences their decisions had for the efficiency of financial markets. The study reveals that princes were usually only able to commit to issuing a stable coinage in gold, but not in silver. As for silver currencies, the hypothesis is that transferring the right of coinage to an autonomous city was the functional equivalent to establishing an independent central bank. An analysis of market performance indicates that financial markets between cities that were autonomous with regard to their monetary policies were significantly better integrated and more efficient than markets between cities whose currencies were supplied by a feudal ruler.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-007.

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Length: 39 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2007-007

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Keywords: Financial markets; integration; monetary policy; Middle Ages;

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References

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  1. Sussman, Nathan, 1998. "The Late Medieval Bullion Famine Reconsidered," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 58(01), pages 126-154, March.
  2. Munro, John H., 2000. "The 'New Institutional Economics' and the Changing Fortunes of Fairs in Medieval and Early Modern Europe: the Textile Trades, Warfare, and Transaction Costs," MPRA Paper 11029, University Library of Munich, Germany, revised Feb 2001.
  3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
  4. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  5. Sussman, Nathan & Zeira, Joseph, 2002. "Commodity Money Inflation: Theory and Evidence from France in 1350-1436," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp02-008, Harvard University, John F. Kennedy School of Government.
  6. Oliver Volckart, 2006. "The Influence of Information Costs on the Integration of Financial Markets: Northern Europe, 1350-1560," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2006-049, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  7. Volckart, Oliver & Wolf, Nikolaus, 2006. "Estimating Financial Integration in the Middle Ages: What Can We Learn from a TAR Model?," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 66(01), pages 122-139, March.
  8. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 79-91, May.
  9. Arthur J. Rolnick & Francois R. Velde & Warren E. Weber, 1997. "The debasement puzzle: an essay on medieval monetary history," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall, pages 8-20.
  10. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 49(04), pages 803-832, December.
  11. N. J. Mayhew, 1974. "Numismatic Evidence and Falling Prices in the Fourteenth Century," Economic History Review, Economic History Society, Economic History Society, vol. 27(1), pages 1-15, 02.
  12. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, Elsevier, vol. 27(2), pages 245-252, August.
  13. Ritschl, Albrecht & Wolf, Nikolaus, 2003. "Endogeneity of Currency Areas and Trade Blocs: Evidence from the Inter-war Period," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4112, C.E.P.R. Discussion Papers.
  14. Peter N. Ireland, 2002. ""Rules Rather Than Discretion" After Twenty Five Years: What Have We Learned? What More Can We Learn?," Boston College Working Papers in Economics, Boston College Department of Economics 530, Boston College Department of Economics.
  15. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 6(4), pages 423-53, November.
  16. Neal, Larry, 1987. "The Integration and Efficiency of the London and Amsterdam Stock Markets in the Eighteenth Century," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 47(01), pages 97-115, March.
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Cited by:
  1. Volodymyr Perederiy, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2007-060, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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