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The Bank, the States, and the Market: An Austro-Hungarian Tale for Euroland, 1867-1914

Author

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  • Marc Flandreau

    () (University of Lille; Research Fellow, OFCE (Paris); CEPR (London))

Abstract

In 1867, the "Compromise" between Austria and Hungary laid the foundation of a single currency system with a common central bank. As in today’s euroland, each part of the monarchy remained sovereign in fiscal matters. Moreover, the borrowing needs of both parts of the monarchy were quite large, since Austria and Hungary sought to promote their own economic development through government spending. Yet no ‘fiscal stability pact’ existed: the two countries could run deficits to the extent of the public's willingness to lend to them. They were thus only subjected to the discipline of the capital market. This paper documents the record of the Austro-Hungarian monetary union and shows how this discipline led to a process of increased power of the central bank.

Suggested Citation

  • Marc Flandreau, 2001. "The Bank, the States, and the Market: An Austro-Hungarian Tale for Euroland, 1867-1914," Working Papers 43, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:43
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    File URL: https://www.oenb.at/dam/jcr:74416f32-58e2-4933-89cd-bbfaa76f1817/wp43_tcm16-6125.pdf
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    References listed on IDEAS

    as
    1. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact? Lessons from the European gold standard, 1880-1914," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 115-162, April.
    2. Missale, Alessandro & Blanchard, Olivier Jean, 1994. "The Debt Burden and Debt Maturity," American Economic Review, American Economic Association, vol. 84(1), pages 309-319, March.
    3. Willem H. Buiter, 1999. "Alice in Euroland," Journal of Common Market Studies, Wiley Blackwell, vol. 37(2), pages 181-209, June.
    4. Rudiger Dornbusch, 1992. "Monetary problems of post-communism: Lessons from the end of the Austro-Hungarian empire," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(3), pages 391-424, September.
    5. Frédéric Zumer & Jacques Le Cacheux & Marc Flandreau, 1998. "Stability without a pact? Lessons from the European Gold Standard, 1880-1913," Working Papers hal-01037858, HAL.
    6. repec:spo:wpecon:info:hdl:2441/645 is not listed on IDEAS
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A History Lesson for Scotland
      by Carola Binder in Noahpinion on 2013-11-27 10:05:00

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    Cited by:

    1. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe," Open Economies Review, Springer, vol. 16(2), pages 135-152, April.
    2. Giuseppe Tullio & Jürgen Wolters, 2007. "Monetary Policy in Austria–Hungary, 1876–1913: An Econometric Analysis of the Determinants of the Central Bank’s Discount Rate and the Liquidity Ratio," Open Economies Review, Springer, vol. 18(5), pages 521-537, November.
    3. Richard C.K. Burdekin & Kris James Mitchener & Marc D. Weidenmier, 2012. "Irving Fisher and Price-Level Targeting in Austria: Was Silver the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(4), pages 733-750, June.
    4. Marc Flandreau & Mathilde Maurel, 2001. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe: Just Do It," Working Papers hal-01065006, HAL.
    5. Patrick Minford, 2004. "Britain, the Euro, and the Five Tests," Cato Journal, Cato Journal, Cato Institute, vol. 24(1-2), pages 75-87, Spring/Su.
    6. Tullio, Guiseppe & Wolters, Jürgen, 2004. "Domestic and international determinants of the Bank of England's liquidity ratios during the classical gold standard, 1876 - 1913: An econometric analysis," Discussion Papers 2004/27, Free University Berlin, School of Business & Economics.
    7. Rodney Thom & Brendan M. Walsh, 2001. "The effect of a common currency on trade : Ireland before and after the Sterling link," Working Papers 200110, School of Economics, University College Dublin.

    More about this item

    Keywords

    Credit channel; balance sheet channel; investment; panel data;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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