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Liquidity Management and Central Bank Strength: Bank of England Operations Reloaded, 1889-1910

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  • Stefano Ugolini

    (University of Toulouse (Institute of Political Studies and LEREPS))

Abstract

Is a strong commitment to monetary stability enough to ensure credibility? The recent literature suggests it might not be if the central bank cannot perform pure interest rate policy and has to resort to balance sheet policy: the central bank’s financial strength (i.e. the long-term sustainability of its policy) is also a determinant of credibility. This paper provides historical evidence on the issue by focusing on the case of the Bank of England at the heyday of the classical gold standard. It shows that as the Bank was not perceived as having the means to fulfil all of its obligations, the efficacy of its interest rate policy was poor. Failing to reform for political economy reasons, the Bank eventually had to default on its formal convertibility mandate.

Suggested Citation

  • Stefano Ugolini, 2016. "Liquidity Management and Central Bank Strength: Bank of England Operations Reloaded, 1889-1910," Working Paper 2016/10, Norges Bank.
  • Handle: RePEc:bno:worpap:2016_10
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2016/102016/
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    Cited by:

    1. Kilian Rieder & Michael Anson & David Bholat & Miao Kang & Ryland Thomas, 2018. "Frosted glass or raised eyebrow? Testing the Bank of England’s discount window policies during the crisis of 1847," Working Papers 18020, Economic History Society.
    2. Stefano Ugolini, 2018. "The Historical Evolution of Central Banking," Post-Print hal-01887004, HAL.
    3. Anson, Mike & Bholat, David & Kang, Miao & Rieder, Kilian & Thomas, Ryland, 2019. "The Bank of England and central bank credit rationing during the crisis of 1847: frosted glass or raised eyebrows?," Bank of England working papers 794, Bank of England.
    4. Quinn, Stephen F. & Roberds, William, 2017. "An Early Experiment with "Permazero"," FRB Atlanta Working Paper 2017-5, Federal Reserve Bank of Atlanta.

    More about this item

    Keywords

    Central banking; institutional design; monetary policy implementation; reverse repos; term structure of interest rates; gold standard;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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