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

Guillaume Bazot · Michael David Bordo · Éric Monnet

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Monetary Policy and Economic Impact Banking stability, regulation, efficiency Global Financial Crisis and Policies

Abstract

Under the classical gold standard , 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).

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References

1989A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle 1998Monetary Policy Shocks: What Have We Learned and to What End?1999Chapter 2 Monetary policy shocks: What have we learned and to what end?1996The Gold Standard as a “Good Housekeeping Seal of Approval”1972The Monetary Approach to Balance-of-Payments Theory 1961Monetary Policy under the International Gold Standard: 1880-1914.2000Currency crises, sunspots and Markov-switching regimes 1996Between the Dollar-Sterling Gold Points

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