The Price of Stability: The Balance Sheet Policy of the Banque De France and the Gold Standard (1880-1914)

64 Pages Posted: 6 Oct 2014

See all articles by Guillaume Bazot

Guillaume Bazot

University Paris 8

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Eric Monnet

Banque de France; Paris School of Economics (PSE)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

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).

Suggested Citation

Bazot, Guillaume and Bordo, Michael D. and Monnet, Eric, The Price of Stability: The Balance Sheet Policy of the Banque De France and the Gold Standard (1880-1914) (October 2014). NBER Working Paper No. w20554. Available at SSRN: https://ssrn.com/abstract=2505859

Guillaume Bazot (Contact Author)

University Paris 8 ( email )

2 rue de la Liberté
Paris, 93526
France

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eric Monnet

Banque de France ( email )

Paris
France

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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