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Discount rate policy under the Classical Gold Standard: core versus periphery (1870s – 1914)

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  • Matthias Morys

Abstract

Drawing on a new data set of monthly observations, this paper investigates similarities and differences in discount rate policy of 12 European countries under the Classical Gold Standard; it asks, in particular, whether bank rate policy followed different patterns in core and peripheral countries. Based on OLS, ordered probit and pooled estimations of central bank discount rate behaviour, two main findings emerge: first, the discount rate decisions of core countries were motivated by keeping the exchange-rate within the gold points. In stark contrast, the discount rate decisions of peripheral countries reflected changes in the domestic cover ratio. The main reason for the different behaviour was the limited effectiveness of the discount rate tool for peripheral countries which resulted in more frequent gold point violations. Consequently, peripheral countries relied on high reserve levels and oriented their discount rate policy towards maintaining the reserve level. Second, interest rate decisions were influenced by Berlin and London to a similar degree, suggesting that the European branch of the Classical Gold Standard was less London-centered than hitherto assumed. In establishing general patterns of discount rate policy, this paper aims to contribute to the wider question of monetary policy under the gold standard and the core-periphery dichotomy.

Suggested Citation

  • Matthias Morys, 2012. "Discount rate policy under the Classical Gold Standard: core versus periphery (1870s – 1914)," Centre for Historical Economics and Related Research at York (CHERRY) Discussion Papers 12/02, CHERRY, c/o Department of Economics, University of York.
  • Handle: RePEc:yor:cherry:12/02
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    File URL: https://www.york.ac.uk/media/economics/documents/cherrydiscussionpapers/1202dp.pdf
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    Cited by:

    1. Ward, Felix & Chen, Yao, 2016. "Rigid relations: External adjustment under the Gold Standard (1880-1913)," Annual Conference 2016 (Augsburg): Demographic Change 145930, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    gold standard; rules of the game; balance-of-payment adjustment; central banking;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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