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Fighting the Last War: Economists on the Lender of Last Resort

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  • Grossman, Richard
  • Rockoff, Hugh T

Abstract

In this paper we trace the evolution of the lender of last resort doctrine?and its implementation?from the nineteenth century through the panic of 2008. We find that typically the most influential economists ?fight the last war?: formulating policy guidelines that would have dealt effectively with the last crisis or in some cases the last two or three. This applies even to the still supreme voice among lender-of-last-resort theorists, Walter Bagehot, who wrestled with the how to deal with the financial crises that hit Britain between the end of the Napoleonic Wars and the panic of 1866. Fighting the last war may leave economists unprepared for meeting effectively the challenge of the next war.

Suggested Citation

  • Grossman, Richard & Rockoff, Hugh T, 2015. "Fighting the Last War: Economists on the Lender of Last Resort," CEPR Discussion Papers 10361, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10361
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    2. Masami Imai & Tetsuji Okazaki & Michiru Sawada, 2022. "The effects of lender of last resort on financial intermediation during the great depression in Japan [Ginko Hatan gaoyobosu Densenkoka no Bunseki (The analyses of the effect of contagion caused by," European Review of Economic History, European Historical Economics Society, vol. 26(3), pages 448-478.
    3. Mike Anson & David Bholat & Miao Kang & Ryland Thomas, 2017. "The Bank of England as Lender of Last Resort: New historical evidence from daily transactional data," Working Papers 0117, European Historical Economics Society (EHES).
    4. Chwieroth, Jeffrey M. & Walter, Andrew, 2022. "Neoliberalism and banking crisis bailouts: distant enemies or warring neighbors?," LSE Research Online Documents on Economics 111871, London School of Economics and Political Science, LSE Library.
    5. Laurent Le Maux, 2021. "Bagehot for Central Bankers," Working Papers Series inetwp147, Institute for New Economic Thinking.
    6. Allen, Kyle D. & Hein, Scott E. & Whitledge, Matthew D., 2017. "The evolution of the Federal Reserve’s Term Auction Facility and FDIC-insured bank utilization," Journal of Financial Stability, Elsevier, vol. 31(C), pages 154-166.
    7. Schuler, Kurt, 2020. "The Financial Firefighter’s Manual," Studies in Applied Economics 169, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    8. Stracca, Livio & Scheubel, Beatrice, 2016. "What do we know about the global financial safety net? Rationale, data and possible evolution," Occasional Paper Series 177, European Central Bank.

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    More about this item

    Keywords

    Bagehot; Bank of england; Central banks; Lender of last resort; Subprime crisis;
    All these keywords.

    JEL classification:

    • B0 - Schools of Economic Thought and Methodology - - General
    • N2 - Economic History - - Financial Markets and Institutions

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