Monetary policy spillovers in the first age of financial globalisation: a narrative VAR approach 1884–1913

Georgina Green

No 718, Bank of England working papers from Bank of England

Abstract: This paper investigates whether movements in the Bank of England’s interest rate hindered the development of the United States by transmitting or amplifying crises during the first age of financial globalisation. Evidence that US monetary and financial developments entered into the Bank’s reaction function implies that a Bank Rate series must include some endogenous rate changes. In order to clean Bank Rate of such movements the narrative approach is applied to a previously unexploited source in the Bank’s archives, ‘The Record of Outstanding Events’. The Bank also followed a known rule of adjusting Bank Rate to preserve its reserves to liabilities ratio. Bank Rate is also cleaned of the contemporaneous impact of this ratio in order to control for any reflex policy movements that could have been anticipated. This ensures that only true monetary policy shocks to the United States are identified. Estimates derived from this new measure indicate that although the Bank was able, via abrupt rate rises, to attract gold to the United Kingdom and replenish its reserves ratio, it was not responsible for causing or aggravating US crises. This result runs counter to conventional wisdom in the literature and contradicts the hypothesis that many US financial crises extended directly back to Threadneedle Street.

Keywords: Bank of England; monetary policy; business cycles; financial crises; international economic history; central banking (search for similar items in EconPapers)
JEL-codes: E52 E58 F44 G01 G20 N10 N12 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2018-03-09
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0718

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