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Bagehot for beginners: The making of lending of last resort operations in the mid-19th century

Listed author(s):
  • Vincent Bignon

    (Graduate Institute, Geneva)

  • Marc Flandreau

    (Graduate Institute, Geneva and CEPR, London)

  • Stefano Ugolini

    (Graduate Institute, Geneva)

According to a Keynesian view, short term output fluctuations are normally demand side led. Since prices reflect demand, they should mirror output fluctuations. Thus, prices and output are expected to move in the same direction in the short run. The present paper investigates the historical co-movements of output and prices for a small open raw material based economy, in this case Norway 1830-2006. We find little evidence of a positive relationship. On the contrary, we rather find negative correlations between the two variables, indicating that supply side shocks through the foreign sector were more important for historical business cycles in Norway than assumed hitherto.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2009/WP-200922/
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Paper provided by Norges Bank in its series Working Paper with number 2009/22.

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Length: 38 pages
Date of creation: 05 Oct 2009
Handle: RePEc:bno:worpap:2009_22
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  1. Flandreau, Marc & Galimard, Christophe & Jobst, Clemens & Nogues-Marco, Pilar, 2006. "The Bell Jar: Commercial Interest Rates between Two Revolutions, 1688-1789," CEPR Discussion Papers 5940, C.E.P.R. Discussion Papers.
  2. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734.
  3. Michael D. Bordo, 1990. "The lender of last resort : alternative views and historical experience," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 18-29.
  4. Antoine Martin, 2006. "Liquidity provision vs. deposit insurance: preventing bank panics without moral hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(1), pages 197-211, 05.
  5. Edward J. Green & Ping Lin, 1996. "Implementing efficient allocations in a model of financial intermediation," Working Papers 576, Federal Reserve Bank of Minneapolis.
  6. Jean-Charles Rochet & Xavier Vives, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," FMG Discussion Papers dp408, Financial Markets Group.
  7. Postlewaite, Andrew & Vives, Xavier, 1987. "Bank Runs as an Equilibrium Phenomenon," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 485-491, June.
  8. Gaetano Antinolfi & Elisabeth Huybens, 2000. "Monetary Stability and Liquidity Crises: The Role of the Lender of Last Resort," Econometric Society World Congress 2000 Contributed Papers 1156, Econometric Society.
  9. Stephen D. Williamson, 1995. "Discount Window Lending and Deposit Insurance," Macroeconomics 9504001, EconWPA, revised 18 Apr 1995.
  10. Repullo, R., 1999. "Who Should Act as Lender of Last Resort? An Incomplete Contracts Model," Papers 9913, Centro de Estudios Monetarios Y Financieros-.
  11. Christopher Sleet & Bruce D. Smith, 2000. "Deposit insurance and lender-of-last-resort functions," Proceedings, Federal Reserve Bank of Cleveland, pages 518-579.
  12. Franklin Allen & Douglas Gale, 1998. "Optimal Financial Crises," Journal of Finance, American Finance Association, vol. 53(4), pages 1245-1284, 08.
  13. Gary Gorton & Lixin Huang, 2002. "Bank Panics and the Endogeneity of Central Banking," Center for Financial Institutions Working Papers 02-29, Wharton School Center for Financial Institutions, University of Pennsylvania.
  14. Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-864, November.
  15. Bruce J. Summers, 1991. "Clearing and payment systems: the role of the central bank," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 81-91.
  16. Acharya, Viral V & Gromb, Denis & Yorulmazer, Tanju, 2008. "Imperfect Competition in the Inter-Bank Market for Liquidity as a Rationale for Central Banking," CEPR Discussion Papers 6984, C.E.P.R. Discussion Papers.
  17. Cooper, Russell & Ross, Thomas W., 1998. "Bank runs: Liquidity costs and investment distortions," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 27-38, February.
  18. Xavier Freixas & Jean-Charles Rochet & Bruno M. Parigi, 2004. "The Lender of Last Resort: A Twenty-First Century Approach," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1085-1115, December.
  19. Antoine Martin, 2009. "Reconciling Bagehot and the Fed's Response to September 11," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 397-415, 03.
  20. Thomas H. Humphrey & Robert E. Keleher, 1984. "The Lender of Last Resort; A Historical Perspective," Cato Journal, Cato Journal, Cato Institute, vol. 4(1), pages 275-321, Spring/Su.
  21. Thomas M. Humphrey & Robert E. Keleher, 1984. "The lender of last resort : a historical perspective," Working Paper 84-03, Federal Reserve Bank of Richmond.
  22. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-592, June.
  23. Michael Collins, 1992. "The Bank of England as lender of last resort, 1857-1878," Economic History Review, Economic History Society, vol. 45(1), pages 145-153, 02.
  24. Charles Goodhart, 1999. "Myths About the Lender of Last Resort," FMG Special Papers sp120, Financial Markets Group.
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