IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/20832.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    Note: DAE ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w20832.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Goodhart, Charles A.E. & Huang, Haizhou, 2005. "The lender of last resort," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1059-1082, May.
    2. repec:spo:wpecon:info:hdl:2441/648 is not listed on IDEAS
    3. Jerome de Boyer des Roches & Ricardo Solis Rosales, 2011. "R.G. Hawtrey on the national and international lender of last resort," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 18(2), pages 175-202.
    4. Christina D. Romer, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 597-624.
    5. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    6. Broz, J. Lawrence & Grossman, Richard S., 2004. "Paying for privilege: the political economy of Bank of England charters, 1694-1844," Explorations in Economic History, Elsevier, vol. 41(1), pages 48-72, January.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
    8. Lucia, Joseph L., 1985. "The failure of the bank of United States: A reappraisal," Explorations in Economic History, Elsevier, vol. 22(4), pages 402-416, October.
    9. Marc Flandreau, 1997. "Central Bank Cooperation in Historical Perspective: A Sceptical View," Economic History Review, Economic History Society, vol. 50(4), pages 735-763, November.
    10. Gorton, Gary B., 2012. "Misunderstanding Financial Crises: Why We Don't See Them Coming," OUP Catalogue, Oxford University Press, number 9780199922901.
    11. Marvin Goodfriend & Robert G. King, 1988. "Financial deregulation, monetary policy, and central banking," Economic Review, Federal Reserve Bank of Richmond, issue May, pages 3-22.
    12. Huberto M. Ennis & Todd Keister, 2009. "Bank Runs and Institutions: The Perils of Intervention," American Economic Review, American Economic Association, vol. 99(4), pages 1588-1607, September.
    13. Tamaki,Norio, 1995. "Japanese Banking," Cambridge Books, Cambridge University Press, number 9780521496766, October.
    14. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    15. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    16. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    17. Richard S. Grossman & Masami Imai, 2013. "Contingent capital and bank risk-taking among British banks before the First World War," Economic History Review, Economic History Society, vol. 66(1), pages 132-155, February.
    18. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
    19. Charles Goodhart, 1999. "Myths About the Lender of Last Resort," FMG Special Papers sp120, Financial Markets Group.
    20. Nelson, Edward, 2013. "Friedman's monetary economics in practice," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 59-83.
    21. Allan H. Meltzer, 2013. "What's Wrong with the Fed? What Would Restore Independence?," Cato Journal, Cato Journal, Cato Institute, vol. 33(3), pages 401-416, Fall.
    22. Marvin Goodfriend, 2012. "The Elusive Promise of Independent Central Banking," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 30, pages 39-54, November.
    23. Timberlake, Richard H, Jr, 1984. "The Central Banking Role of Clearinghouse Associations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 1-15, February.
    24. Philip Cagan, 1965. "Determinants and Effects of Changes in the Stock of Money, 1875–1960," NBER Books, National Bureau of Economic Research, Inc, number caga65-1.
    25. Milton Friedman & Anna J. Schwartz, 1987. "Has Government Any Role in Money?," NBER Chapters,in: Money in Historical Perspective, pages 289-314 National Bureau of Economic Research, Inc.
    26. Collins, Michael, 1972. "The Langton Papers: Banking and Bank of England Policy in the 1830s," Economica, London School of Economics and Political Science, vol. 39(153), pages 47-59, February.
    27. Michael D. Bordo, 1990. "The lender of last resort : alternative views and historical experience," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 18-29.
    28. Vincent Bignon & Marc Flandreau & Stefano Ugolini, 2012. "Bagehot for beginners: the making of lender‐of‐last‐resort operations in the mid‐nineteenth century," Economic History Review, Economic History Society, vol. 65(2), pages 580-608, May.
    29. Trescott, Paul B, 1992. "The Failure of the Bank of the United States, 1930: A Rejoinder," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(3), pages 384-399, August.
    30. Robert L. Hetzel, 1987. "Henry Thornton: seminal monetary theorist and father of the modern central bank," Economic Review, Federal Reserve Bank of Richmond, issue Jul, pages 3-16.
    31. Allan H Meltzer, 2013. "What's Wrong With the Federal Reserve: What Would Restore Independence?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 48(2), pages 96-103, April.
    32. repec:dau:papers:123456789/1795 is not listed on IDEAS
    33. Ben S. Bernanke, 2013. "The Federal Reserve and the Financial Crisis," Economics Books, Princeton University Press, edition 1, number 9928, October.
    34. Geoffrey Wood, 2000. "The Lender of Last Resort Reconsidered," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(2), pages 203-227, December.
    35. John A. James & James McAndrews & David F. Weiman, 2013. "Wall Street and Main Street: the macroeconomic consequences of New York bank suspensions, 1866–1914," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 7(2), pages 99-130, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    More about this item

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:20832. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.