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

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  • 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.

Suggested Citation

  • Richard S. Grossman & Hugh Rockoff, 2015. "Fighting the Last War: Economists on the Lender of Last Resort," NBER Working Papers 20832, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20832
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    References listed on IDEAS

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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. Masami Imai & Tetsuji Okazaki & Michiru Sawada, 2019. "The Effects of Lender of Last Resort on Financial Intermediation during the Great Depression in Japan," CIRJE F-Series CIRJE-F-1111, CIRJE, Faculty of Economics, University of Tokyo.
    3. 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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    JEL classification:

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

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