Topics in the History of Money and Banking
Saturday, Jan. 7, 2017 3:15 PM – 5:15 PM
- Chair: Carola Frydman, Northwestern University
Regime Change and Recovery in 1930s Britain
AbstractWe show Britain's robust recovery from the Great Depression after mid-1932 was driven by a policy regime change that ended expectations of deflation. With interest rates at their historic lower bound and little fiscal space, the regime change was driven by a cheap money policy, regular statements by the Chancellor of a desire to see prices rise, and institutional change. We calibrate an open economy dynamic stochastic general equilibrium model for 1930s Britain and show the recovery from the recession occurred in two stages. We show that early exit from the gold standard in September 1931 was a critical precondition for Britain’s recovery. Nine months later the `managed economy' strategy (Howson 1975, Booth 1987, Crafts 2013) spurred a lasting recovery via the reduction of real interest rates and the ending of deflationary expectations. We quantify the relative effect of the regime change in a counterfactual simulation of the model.
Greece's Fundamental Problem With Monetary Unions: Past and Present
AbstractWe add a historical and regional dimension to the debate on the Greek debt crisis. Analysing Greece, Romania, Serbia/Yugoslavia and Bulgaria from political independence to WW II, we find surprising parallels to the present: repeated cycles of entry to and exit from monetary unions, government debt build-up and default, and financial supervision by West European countries. Gold standard membership was more short-lived than in any other part of Europe due to fiscal dominance. Granger causality tests and money growth accounting show that the prevailing pattern of fiscal dominance was only broken under international financial control, when strict conditionality scaled back the treasury’s influence; only then were central banks able to conduct a rule-bound monetary policy and stabilize their exchange-rates. The long-run record of Greece suggests that the perennial economic and political objective of monetary union membership can only be maintained and secured if both monetary and fiscal policy remains firmly anchored in a European institutional framework.
An Empirical History of the United States Postal Savings System
AbstractUsing novel data sets on postal savings depositor behavior and bank location, we provide a history of the United States Postal Savings System by measuring how depositor behavior changed over time, in response to economic shocks, and the presence of commercial banks. We show that the system went through three distinct phases: pre-1929 Crash, Great Depression until WWII, and WWII through the end of the program. The characteristics of depositors changed over time, from non-farming immigrant populations in the early years towards broad nationwide use of the system from the mid-1930’s. Throughout the history of the system, depositors changed their behavior during negative economic shocks, relying more heavily on postal savings, especially for short-term deposits. Finally, postal savings deposits decreased with the establishment of national banks during the early years of the system, indicating that postal savings was at least a partial substitute for commercial banks.
- N2 - Financial Markets and Institutions