Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-16T07:22:38.045Z Has data issue: false hasContentIssue false
  • English
  • Français

Monetary Policy and Expectations: Market-Control Techniques and the Bank of England, 1925–1931

Published online by Cambridge University Press:  03 March 2009

John R. Garrett
John R. Garrett
Affiliation:
Associate Professor of Economics at the University of Tennessee at Chattanooga, Chattanooga, TN 37403.
Get access Rights & Permissions [Opens in a new window]

Abstract

The Bank of England depleted its open-market portfolio by secretly sterilizing large gold inflows. Thereafter interest rates were influenced by manipulating reported gold flows. Expectations manipulation as a monetary policy channel is modeled and estimated. A gold flow falsification was over two-thirds as effective as an open-market operation. These results contradict accepted new classical models and suggest that credibility benefits from new classical policy are small, despite current popularity among central bankers. The episode supports Peter Temin’s view of interwar central bankers as nonstabilizers and enforcers of a dysfunctional classical orthodoxy.

Type
Articles
Information
The Journal of Economic History , Volume 55 , Issue 3 , September 1995 , pp. 612 - 636
Copyright
Copyright © The Economic History Association 1995

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Barro, , J., Robert and B. Gordon, David. “Rules, Discretion and Reputation in a Model of Monetary Policy.” Journal of Monetary Economics 12, no. 1 (1983): 101–22.CrossRefGoogle Scholar
Barro, , J., Robert and B. Gordon, David. “A Positive Theory of Inflation in a Natural Rate Model.” Journal of Political Economy 91, no. 4 (1983): 589–610.CrossRefGoogle Scholar
Brown, William Adams Jr. The Gold Standard Reinterpreted 1914–1934. N.Y.: National Bureau of Economic Research, 1940.Google Scholar
Buiter, , Willem, . “The Macroeconomics of Dr. Pangloss: A Critical Survey of the New Classical Economics.” Economic Journal 90, no. 357 (1980): 34–50.CrossRefGoogle Scholar
Canzoneri, , B., Matthew “Monetary Policy Games and the Role of Private Information.” American Economic Review 75, no. 5 (1985): 1056–70.Google Scholar
Capie, , Forest, and Webber, Alan. A Monetary History of the United Kingdom, 1870–1982. London: George Allen & Unwin, 1985.Google Scholar
Clarke, S. V. O.Central Bank Cooperation 1924–31. N.Y.: Federal Reserve Bank of New York, 1967.Google Scholar
Clay, , Henry, . Lord Norman. London: Macmillan and Co., Ltd., 1957.Google Scholar
Driffill, , John, . “Macroeconomic Policy Games with Incomplete Information.” European Economic Review 32, nos. 2/3 (1988): 533–41.CrossRefGoogle Scholar
Eichengreen, , Barry, , W. Watson, Mark, and S. Grossman, Richard. “Bank Rate Policy Under the Interwar Gold Standard.” The Economic Journal 95, no. 379 (1985): 725-45.CrossRefGoogle Scholar
Eichengreen, , Barry, . Elusive Stability. Cambridge: Cambridge University Press, 1990.CrossRefGoogle Scholar
Eichengreen, , Barry, . “The Origins and Nature of the Great Slump Revisited.” The Economic History Review 45, no. 2 (1992): 213–39.CrossRefGoogle Scholar
Friedman, , Milton, , and J. Schwartz, Anna. A Monetary History of the United States. Princeton: Princeton University Press, 1963.Google Scholar
Garfinkel, , R., Michelle, and Oh, Seonghwan. “Strategic Discipline in Monetary Policy with Private Information: Optimal Targeting Horizons.” The American Economic Review 83, no. 1 (1993): 99–117.Google Scholar
Garrett, , R., John, “Macroeconomic Policy and History.” Cambridge Journal of Economics 11, no. 4 (1987): 375–92.Google Scholar
Garrett, , R., John, “Decline of an Empire: The Politics and Techniques of British Monetary Policy in the 1920s.” International Review of Economics and Business 36, nos. 11/12 (1990) 879–911.Google Scholar
Hawtrey, R. G.Monetary Reconstruction. 2nd ed.London: Longmans, Green & Co., 1926.Google Scholar
Holtfrerich, , Carl-Ludwig, . Was the Policy of Deflation in Germany Unavoidable? Berlin: Freie Universität, 1988. Mimeo.Google Scholar
Howson, , Susan, . Domestic Monetary Management in Britain 1919–1938. Cambridge: Cambridge University Press, 1975.Google Scholar
James, , Harold, . “Financial Flows Across Frontiers During the Interwar Depression.” Economic History Review 45, no. 3 (1992) 594–613.CrossRefGoogle Scholar
Keynes, , Maynard, John. The Economic Consequences of Mr. Churchill. London: Leonard and Virginia Wolf of the Hogarth Press, 1925.Google Scholar
Keynes, , Maynard, John. “The Amalgamation of the British Note Issues.” Economic Journal 38 (1928): 321–28.CrossRefGoogle Scholar
Kindleberger, , P., CharlesThe World in Depression, 1929–1939. 2nd ed.Berkeley: University of California Press, 1986.Google Scholar
Kydland, , E., Finn and C. Prescott, Edward. “Rules Rather Than Discretion: The Inconsistency of Optimal Plans.” Journal of Political Economy 85, no. 3 (1977): 473–92.CrossRefGoogle Scholar
Lohmann, , Susanne, . “Optimal Commitment in Monetary Policy: Credibility vs. Flexibility.” American Economic Review 82, no. 1 (1992): 273–86.Google Scholar
Moggridge, D. E.British Monetary Policy 1924–1931. Cambridge: Cambridge University Press, 1972.Google Scholar
Neumann, , J. M., Manfred “Precommitment to Stability by Central Bank Independence.” Sonderforschungsbereich 303 Discussion Paper. Bonn University, 1992.Google Scholar
Oh, , Seonghwan, and R. Garfinkel, Michelle. “Strategic Considerations in Monetary Policy with Private Information.” The Federal Reserve Bank of St. Louis Review 72 (07–08, 1990): 3–16.Google Scholar
Persson, , Torsten, . “Credibility of Macroeconomic Policy: An Introduction and a Broad Survey.” European Economic Review 32, nos. 2/3 (1988): 519–32.CrossRefGoogle Scholar
Rogoff, , Kenneth, . “The Optimal Degree of Commitment to an Intermediate Monetary Target.” Quarterly Journal of Economics 100, no. 4 (1985): 1169–90.CrossRefGoogle Scholar
Sargent, J., ThomasRational Expectations and Economic Policy. New York: McGraw- Hill, 1986.Google Scholar
Sayers, R. S. “The Return to Gold, 1925.” In The Gold Standard and Employment Policies between the Wars, edited by Pollard, Sidney, 000–000. London: Methuen & Co., 1970.Google Scholar
Sayers, R. S.. The Bank of England 1891–1944. Cambridge: Cambridge University Press, 1976.Google Scholar
Tobin, James. “Are New Classical Models Plausible Enough to Guide Policy?” Journal of Money, Credit and Banking 12, no. 4, part 2 (1980): 788–99.CrossRefGoogle Scholar
Temin, Peter, . Lessons from the Great Depression. Cambridge, MA: The MIT Press, 1989.Google Scholar
United Kingdom. Statistical Abstract of the United Kingdom. no. 18, 1937.Google Scholar
Woolley, , T, John. Monetary Politics: The Federal Reserve and the Politics of Monetary Policy. Cambridge: Cambridge University Press, 1984.CrossRefGoogle Scholar