Working Paper: NBER ID: w20832
Authors: Richard S. Grossman; Hugh Rockoff
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: No keywords provided
JEL Codes: B0; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| LOLR interventions (G33) | stabilization of financial systems (P34) |
| inaction as LOLR (E49) | increased economic distress (H84) |
| historical experiences (B15) | contemporary economic policy (E65) |
| timely liquidity provision (E44) | avoidance of widespread economic distress (H84) |