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

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Listed author(s):
  • Richard S. Grossman
  • Hugh Rockoff

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20832.

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Date of creation: Jan 2015
Handle: RePEc:nbr:nberwo:20832
Note: DAE ME
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  • B0 - Schools of Economic Thought and Methodology - - General
  • N2 - Economic History - - Financial Markets and Institutions

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Cited by:

  1. Green, Christopher & Bai, Ye & Murinde, Victor & Ngoka, Kethi & Maana, Isaya & Tiriongo, Samuel, 2016. "Overnight interbank markets and the determination of the interbank rate: A selective survey," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 149-161.
  2. 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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