How the Bank of France Changed U.S. Equity Expectations and Ended the Panic of 1907

Mary Tone Rodgers and James Payne

The Journal of Economic History, 2014, vol. 74, issue 2, 420-448

Abstract: Using an event study approach, we find the announcement by the Bank of France in 1907 to accelerate gold payments directly for U.S. crops is associated with the ultimate upturn in U.S. equity prices. Spillover to the French financial markets accompanied the Regents’ decision to release sterilized reserves, thereby arresting the drainage of coin in French circulation. Counterfactual analysis shows that the facility alone would have been unlikely to end the crisis. Investors may have revised equity expectations upward, recognizing that the acceleration in reliable seasonal gold flows would relieve monetary stringency.

Date: 2014
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