The Lender of Last Resort: Some Historical Insights

This paper discusses the role for a lender of last resort (LLR) in preventing banking panics (section I) , then briefly considers classical and more recent concepts of the LLR (section II). Section III examines historical evidence for the U.S. and other countries on the incidence of banking panics and LLR actions, and the record of alternative LLR arrangements in the U.S., Scotland and Canada, as well as the historical record on ailouts. Section IV offers some lessons from history.

Growing Up to Financial Stability

This lecture revisits the evidence on the incidence and severity of different varieties of financial crises within the context of globalization then ( pre-1914) and now ( 1980 to the present). I then discuss the determinants of emerging market crises from the perspective of the recent balance sheet approach. This approach puts at center stage the importance of financial development. I then peel the onion back further and consider the "deep" institutional determinants of financial development and their relationship to financial stability. I conclude by conjecturing about the ways countries learn from their financial crises to improve their institutions and grow up to financial stability.

The financial crisis of 1825 and the restructuring of the British financial system - commentary

Banks and banking - History ; Banks and banking - Great Britain ; Great Britain ; Financial crises - Great Britain

A Historical Perspective on the Crisis of 2007–08

This paper provides a historical perspective on the current crisis, contrasting the old with the modern. We identify the growth of the nonbank financial sector (a shadow banking system) that was not regulated by the central bank or covered by the financial safety net as a key modern twist, compared to other crises. We also offer some lessons for monetary policy on key issues of liquidity, solvency, and the stability of the real economy.

The lender of last resort : alternative views and historical experience

Four views on the proper role of the lender of last resort are defined. Historical evidence is given on the causes of banking panics in the U.S. and other countries and the roles lenders of last resort played in resolving them.Banks and banking - History ; Lenders of last resort ; Banks and banking, Central

Sudden Stops, Financial Crises, and Original Sin in Emerging Countries: Déjà vu?

The current pattern of sudden stops and financial crises in emerging markets has great resonance to events in the first era of globalization, from 1870-1913. In this paper I present descriptive statistics on capital flows, current account reversals and financial crises during the period 1870-1913 and compare them with the recent experience. I analyze the incidence of crises and measure their effects on real output losses. Furthermore, I consider the influence of openness to trade, original sin and currency mismatches on the pattern of sudden stops and financial crises. I find strikingly similar patterns across both eras of globalization. The pre-1914 sudden stops were associated with significant output losses comparable with the recent events, and their effects differed considerably depending on a country%u2019s economic circumstances, just as they do today.

Globalization and imbalances in historical perspective

Global imbalances associated with the U.S. current account deficit have given rise to speculation about the nature of the impending adjustment: Will it be smooth and gradual, or will it be sudden and costly? This paper summarizes the two views and then considers three historical periods with similar pressures--an earlier era of globalization from 1870 to 1914, the interwar gold standard, and Bretton Woods. A comparison of the periods and their outcomes suggests current global imbalances might resolve themselves quietly.Globalization ; International economic integration

A return to the convertibility principle? Monetary and fiscal regimes in historical perspective. The internal evidence.

With the establishment of the EMU and the ECB, the interaction between monetary and fiscal polices is now a major policy issue in the Euro-area, dealt with in detail in the Maastricht and Amsterdam treaties and in the Stability and Growth Pact. This paper provides a background to this issue by exploring the long-run relationship between monetary and fiscal policies. We examine a large set of data covering major economies, including eleven out of the fifteen present members of EU, during the past 115 years. The evidence suggests the existence of a close interaction between the monetary regime, that is the behaviour of the central bank, and the fiscal regime, that is the tax and spending behaviour of governments as reflected in the evolution of budget deficits and public debt. The creation of the EMU and of the euro should properly be regarded as a return to the convertibility principle. The European central bank (ECB) declared in 1998 price stability as the primary goal of its policy. The present twelve members of the euro area are committed to support this goal by a policy of fiscal prudence. In short, the new European monetary regime is designed to dominate the fiscal regime in order to guarantee the credibility and sustainability of the goal of price stability. Monetary and fiscal policy, gold standard, convertibility, monetary regimes, Bretton Woods

The Global Velocity Curve 1952-1982

This paper provides evidence and an explanation for an empirical regularity in the income velocity of money. Based on a cross country comparison in the post World War II period of 84 countries arrayed from very low to very high per capita income, velocity displays a U shaped pattern. This observed cross country pattern is very similar to one observed in an earlier study by the authors for a number of advanced countries for over a century. The U-shaped pattern of velocity behavior is explained by an approach which stresses the influence of institutional factors. On a secular basis the downward trend in velocity is due to a process of monetization while the upward trend is explained by financial development. On a cross country basis industrialized countries with we1 1 developed financial systems should generally display a rising 'trend in velocity while poor countries at an earlier stage of economics growth should as a rule have falling trends. Velocity in economies "in between" should exhibit a fairly flat pattern with a weak positive or negative trend.

Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy

The link between monetary policy and asset price movements has been of perennial interest to policy makers. In this paper we consider the potential case for pre-emptive monetary restrictions when asset price reversals can have serious effects on real output. First, we provide some historical background on two famous asset price reversals: the U.S. stock market crash of 1929 and the bursting of the Japanese bubble in 1989. We then present some stylized facts on boom-bust dynamics in stock and property prices in developed economies. We then discuss the case for a pre-emptive monetary policy in the context of a stylized 'Dynamic New Keynesian' framework with collateral constraints in the productive sector. We find that whether such a policy is warranted depends on the economic conditions in a complex, non-linear way. The optimal policy cannot be summarized by a simple policy rule of the type considered in the inflation-targeting literature.