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Credit constraints and distance, what room for Central banking? The French experience (1880-1913)

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  • Guillaume Bazot

    (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

Abstract

Although a relative consensus is emerging about the economic effects of credit development, many controversies remain as to the role of the central bank in that development. This paper addresses the process of credit allocation by the central bank as observed on a spatial basis. It examines how and why improved geographical access to the central bank contributes to credit development by looking at the Fench experience in the ‘classical period' (1880-1913). In an environment of emerging, but highly prudent, deposit banks and the absence of a centralised money market, Banque de Fance branches had enough supply and demand to generate a network. Access to “central loans” hence reduced liquidity constraints and encouraged local banks and firms to lend. We shape the proof in two stages. First, a simple banking model presents our intuition and the mechanisms at work. Second, we take a new data set on the development of credit by French geographic area (département) to test our hypothesis using panel econometric tools. The results show the Banque de France branches having a strong and robust impact on credit development.

Suggested Citation

  • Guillaume Bazot, 2010. "Credit constraints and distance, what room for Central banking? The French experience (1880-1913)," PSE Working Papers halshs-00564839, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00564839
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00564839
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    Keywords

    credit constraint; distance; soft information; succursales of the Banque de France; credit development; contrainte de crédit; information soft; succursales de la Banque de France; développement du crédit;

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