IDEAS home Printed from https://ideas.repec.org/a/eee/reecon/v76y2022i4p290-307.html
   My bibliography  Save this article

On the response to the financial crisis of 1914: The Bank of England's discount policy

Author

Listed:
  • Agostino, Mariarosaria
  • Errico, Lucia
  • Rondinella, Sandro
  • Trivieri, Francesco

Abstract

This work investigates the Bank of England's policy response to the London Financial Crisis of 1914, triggered by the outbreak of the Great War. By using daily data on discount operations drawn from the Bank of England's historical archive, we empirically test whether the Central Bank played the role of lender of last resort or it restricted credit. Our results suggest that, during 1914, the Bank of England did not change its policy in terms of bills’ discounting. Even though the discounter identity might have been a determinant of Bank's lending decisions (as in Flandreau and Ugolini, 2011 and 2013; Anson et al., 2019a), our evidence suggests that, throughout 1914, the Bank of England operated as a lender of last resort according to the Bagehot rules.

Suggested Citation

  • Agostino, Mariarosaria & Errico, Lucia & Rondinella, Sandro & Trivieri, Francesco, 2022. "On the response to the financial crisis of 1914: The Bank of England's discount policy," Research in Economics, Elsevier, vol. 76(4), pages 290-307.
    • Handle: RePEc:eee:reecon:v:76:y:2022:i:4:p:290-307
    DOI: 10.1016/j.rie.2022.09.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1090944322000473
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.rie.2022.09.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jaffee, Dwight M & Modigliani, Franco, 1969. "A Theory and Test of Credit Rationing," American Economic Review, American Economic Association, vol. 59(5), pages 850-872, December.
    2. Roberts, Richard, 2013. "Saving the City: The Great Financial Crisis of 1914," OUP Catalogue, Oxford University Press, number 9780199646548.
    3. Marc Flandreau, Stefano Ugolini, 2011. "Where It All Began: Lending of Last Resort and the Bank of England during the Overend, Gurney Panic of 1866," IHEID Working Papers 04-2011, Economics Section, The Graduate Institute of International Studies.
    4. Mr. Garry J. Schinasi, 2003. "Responsibility of Central Banks for Stability in Financial Markets," IMF Working Papers 2003/121, International Monetary Fund.
    5. Santarosa, Veronica Aoki, 2015. "Financing Long-Distance Trade: The Joint Liability Rule and Bills of Exchange in Eighteenth-Century France," The Journal of Economic History, Cambridge University Press, vol. 75(3), pages 690-719, September.
    6. Bagehot, Walter, 1873. "Lombard Street: A Description of the Money Market," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number bagehot1873.
    7. Cassis, Youssef, 2011. "Crises and Opportunities: The Shaping of Modern Finance," OUP Catalogue, Oxford University Press, number 9780199600861.
    8. Niall Ferguson, 2008. "Earning from History? Financial Markets and the Approach of World Wars," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 431-490.
    9. 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.
    10. Mike Anson & David Bholat & Miao Kang & Ryland Thomas, 2017. "The Bank of England as Lender of Last Resort: New historical evidence from daily transactional data," Working Papers 0117, European Historical Economics Society (EHES).
    11. Gary B. Gorton & Guillermo L. Ordoñez, 2014. "How Central Banks End Crises," PIER Working Paper Archive 14-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    12. Joachim Wagner, 2003. "Unobserved firm heterogeneity and the size-exports nexus: Evidence from German panel data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(1), pages 161-172, March.
    13. Thomas M. Humphrey, 1975. "The classical concept of the lender of last resort," Economic Review, Federal Reserve Bank of Richmond, vol. 61(Jan), pages 2-9.
    14. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    15. Hausman, Jerry A & Leonard, Gregory K, 1997. "Superstars in the National Basketball Association: Economic Value and Policy," Journal of Labor Economics, University of Chicago Press, vol. 15(4), pages 586-624, October.
    16. Gary Richardson & William Troost, 2009. "Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi-Experimental Evidence from a Federal Reserve District Border, 1929-1933," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1031-1073, December.
    17. Raffaella Calabrese, 2012. "Regression Model for Proportions with Probability Masses at Zero and One," Working Papers 201209, Geary Institute, University College Dublin.
    18. Papke, Leslie E. & Wooldridge, Jeffrey M., 2008. "Panel data methods for fractional response variables with an application to test pass rates," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 121-133, July.
    19. Jaime Reis, 2015. "Bagehot for ‘followers’: how did the Portuguese Lender of Last Resort manage the post-World War I crisis?," Working Papers 15001, Economic History Society.
    20. Vincent Bignon & Marc Flandreau & Stefano Ugolini, 2009. "Bagehot for beginners: The making of lending of last resort operations in the mid-19th century," Working Paper 2009/22, Norges Bank.
    21. Anson, Mike & Bholat, David & Kang, Miao & Rieder, Kilian & Thomas, Ryland, 2019. "The Bank of England and central bank credit rationing during the crisis of 1847: frosted glass or raised eyebrows?," Bank of England working papers 794, Bank of England.
    22. Charles W. Calomiris & Joseph R. Mason, 2003. "Consequences of Bank Distress During the Great Depression," American Economic Review, American Economic Association, vol. 93(3), pages 937-947, June.
    23. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, April.
    24. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    25. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
    26. Xavier Freixas & Curzio Giannini & Glenn Hoggarth & Farouk Soussa, 2000. "Lender of Last Resort: What Have We Learned Since Bagehot?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(1), pages 63-84, October.
    27. Marc Flandreau & Stefano Ugolini, 2013. "Where It All Began: Lending of Last Resort and Bank of England Monitoring During the Overend-Gurney Panic of 1866," Post-Print hal-01293916, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anson, Mike & Bholat, David & Kang, Miao & Rieder, Kilian & Thomas, Ryland, 2019. "The Bank of England and central bank credit rationing during the crisis of 1847: frosted glass or raised eyebrows?," Bank of England working papers 794, Bank of England.
    2. Kilian Rieder & Michael Anson & David Bholat & Miao Kang & Ryland Thomas, 2018. "Frosted glass or raised eyebrow? Testing the Bank of England’s discount window policies during the crisis of 1847," Working Papers 18020, Economic History Society.
    3. Olivier Accominotti & Delio Lucena‐Piquero & Stefano Ugolini, 2021. "The origination and distribution of money market instruments: sterling bills of exchange during the first globalization," Economic History Review, Economic History Society, vol. 74(4), pages 892-921, November.
    4. Laurent Le Maux, 2021. "Bagehot for Central Bankers," Working Papers Series inetwp147, Institute for New Economic Thinking.
    5. Hautcoeur, Pierre-Cyrille & Riva, Angelo & White, Eugene N., 2014. "Floating a “lifeboat”: The Banque de France and the crisis of 1889," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 104-119.
    6. Calomiris, Charles W. & Flandreau, Marc & Laeven, Luc, 2016. "Political foundations of the lender of last resort: A global historical narrative," Journal of Financial Intermediation, Elsevier, vol. 28(C), pages 48-65.
    7. Gary Gorton, 2015. "Stress for Success: A Review of Timothy Geithner's Financial Crisis Memoir," Journal of Economic Literature, American Economic Association, vol. 53(4), pages 975-995, December.
    8. Stefano Ugolini, 2012. "The origins of foreign exchange policy: the National Bank of Belgium and the quest for monetary independence in the 1850s," European Review of Economic History, European Historical Economics Society, vol. 16(1), pages 51-73, February.
    9. Patrick K. O'Brien & Nuno Palma, 2023. "Not an ordinary bank but a great engine of state: The Bank of England and the British economy, 1694–1844," Economic History Review, Economic History Society, vol. 76(1), pages 305-329, February.
    10. Gary B. Gorton & Guillermo L. Ordoñez, 2014. "How Central Banks End Crises," PIER Working Paper Archive 14-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    11. Mike Anson & David Bholat & Miao Kang & Ryland Thomas, 2017. "The Bank of England as Lender of Last Resort: New historical evidence from daily transactional data," Working Papers 0117, European Historical Economics Society (EHES).
    12. Nguimkeu, Pierre & Zeufack, Albert, 2024. "Manufacturing in structural change in Africa," World Development, Elsevier, vol. 177(C).
    13. Breitenlechner, Max & Mathy, Gabriel P. & Scharler, Johann, 2021. "Decomposing the U.S. Great Depression: How important were loan supply shocks?," Explorations in Economic History, Elsevier, vol. 79(C).
    14. Carolyn Sissoko, 2022. "Becoming a central bank: The development of the Bank of England's private sector lending policies during the Restriction," Economic History Review, Economic History Society, vol. 75(2), pages 601-632, May.
    15. Esmeralda A. Ramalho & Joaquim J.S. Ramalho & José M.R. Murteira, 2011. "Alternative Estimating And Testing Empirical Strategies For Fractional Regression Models," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 19-68, February.
    16. Marc Flandreau & Stefano Ugolini, 2014. "The Crisis of 1866," IHEID Working Papers 10-2014, Economics Section, The Graduate Institute of International Studies.
    17. Clemens Jobst & Kilian Rieder, 2023. "Supervision without regulation: Discount limits at the Austro–Hungarian Bank, 1909–13," Economic History Review, Economic History Society, vol. 76(4), pages 1074-1109, November.
    18. Ahmed, Salma & Feeny, Simon & Posso, Alberto, 2015. "What firm characteristics determine women’s employment in manufacturing? Evidence from Bangladesh," MPRA Paper 84492, University Library of Munich, Germany.
    19. Narcizo, Rodolfo R. & Oliveira, Alessandro V.M. & Dresner, Martin E., 2020. "An empirical model of airline fleet standardization in Brazil: Assessing the dynamic impacts of mergers with an events study," Transport Policy, Elsevier, vol. 97(C), pages 149-160.
    20. Nicole M. Mason & Thomas S. Jayne & Nicolas van de Walle, 2017. "The Political Economy of Fertilizer Subsidy Programs in Africa: Evidence from Zambia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 705-731.

    More about this item

    Keywords

    Financial crisis; Bank of England; Great war; Bagehot rules;
    All these keywords.

    JEL classification:

    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    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:eee:reecon:v:76:y:2022:i:4:p:290-307. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622941 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.