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Fighting the Last War: Economists on the Lender of Last Resort

Richard Grossman () and Hugh Rockoff ()

No 10361, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we trace the evolution of the lender of last resort doctrine—and its implementation—from the nineteenth century through the panic of 2008. We find that typically the most influential economists “fight the last war”: formulating policy guidelines that would have dealt effectively with the last crisis or in some cases the last two or three. This applies even to the still supreme voice among lender-of-last-resort theorists, Walter Bagehot, who wrestled with the how to deal with the financial crises that hit Britain between the end of the Napoleonic Wars and the panic of 1866. Fighting the last war may leave economists unprepared for meeting effectively the challenge of the next war.

Keywords: Bagehot; Bank of England; central banks; lender of last resort; subprime crisis (search for similar items in EconPapers)
JEL-codes: B0 N2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe and nep-mon
Date: 2015-01
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