Protecting Financial Stability in the Aftermath of World War I: The Federal Reserve Bank of Atlanta's Dissenting Policy

Eugene White ()

No 21341, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: During the 1920-1921 recession, the Federal Reserve Bank of Atlanta resisted the deflationary policy sanctioned by the Federal Reserve Board and pursued by other Reserve banks. By borrowing gold reserves from other Reserve banks, it facilitated a reallocation of liquidity to its district during the contraction. Viewing the collapse of the price of cotton, the dominant crop in the region, as a systemic shock to the Sixth District, the Atlanta Fed increased discounting and enabled capital infusions to aid its member banks. The Atlanta Fed believed that it had to limit bank failures to prevent a fire sale of cotton collateral that would precipitate a general panic. In this previously unknown episode, the Federal Reserve Board applied considerable pressure on the Atlanta Fed to adhere to its policy and follow a simple Bagehot-style rule. The Atlanta Fed was vindicated when the shock to cotton prices proved to be temporary, and the Board conceded that the Reserve Bank had intervened appropriately.

JEL-codes: E58 G01 N12 N22 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe, nep-mac and nep-mon
Note: DAE ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as White, E. (2017). Protecting Financial Stability in the Aftermath of World War I: The Federal Reserve Bank of Atlanta’s Dissenting Policy. In P. Rousseau & P. Wachtel (Eds.), Financial Systems and Economic Growth: Credit, Crises, and Regulation from the 19th Century to the Present (Studies in Macroeconomic History, pp. 201-231). Cambridge: Cambridge University Press. doi:10.1017/9781316493281.008

Downloads: (external link)
http://www.nber.org/papers/w21341.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:21341

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w21341

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().