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Fighting the Last War: economists on the lender of last resort

Listed author(s):
  • Richard S. Grossman

    ()

    (Department of Economics Wesleyan University and Institute for Quantitative Social Science Harvard University)

  • Hugh Rockoff

    ()

    (Department of Economics Rutgers University)

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 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 Rutgers University, Department of Economics in its series Departmental Working Papers with number 201515.

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Length: 73 pages
Date of creation: 15 Oct 2015
Handle: RePEc:rut:rutres:201515
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