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The Price of Stability: The balance sheet policy of the Banque de France and the Gold Standard (1880-1914)

Guillaume Bazot (), Michael Bordo () and Eric Monnet ()

No 20554, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Under the classical gold standard (1880-1914), the Bank of France maintained a stable discount rate while the Bank of England changed its rate very frequently. Why did the policies of these central banks, the two pillars of the gold standard, differ so much? How did the Bank of France manage to keep a stable rate and continuously violate the "rules of the game"? This paper tackles these questions and shows that the domestic asset portfolio of the Bank of France played a crucial role in smoothing international shocks and in maintaining the stability of the discount rate. This policy provides a striking example of a central bank that uses its balance sheet to block the interest rate channel and protect the domestic economy from international constraints (Mundell's trilemma).

JEL-codes: E42 E43 E50 E58 N13 N23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe, nep-mac and nep-mon
Date: 2014-10
Note: DAE ME
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