Category Archives: Economic History

The Nightmare before Christmas: Financial crises go global in 1857

Tobias Neumann.

A railway boom in America’s Midwest goes spectacularly bust.  Sixty-two of New York’s commercial banks close – out of sixty-three. Meanwhile in Britain, a decade gilt-edged by gold discoveries in Australia and fuelled by the Crimean War was beginning to lose its lustre.  Thus the scene was set for the first global financial crisis shaking markets in New York, London, Paris and across the world.  A crisis so severe it forced the Bank of England to “break the law” to survive.

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Filed under Banking, Economic History, Financial Stability, Macroeconomics

The ghost of crises past, present and future: The Bank Charter Act goes on trial in 1847

Huaxiang Huang and Ryland Thomas.

The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act  of 1844 (Morgan (1952)).  The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.   The Act gave the Bank of England an effective monopoly in the issue of new bank notes and those additional notes had to be backed one for one with gold.   But this had a crucial unintended consequence:  it made it difficult for the Bank to act as a lender of last resort.  When the crisis struck, the limits imposed by the Act effectively had to be suspended.

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Filed under Banking, Economic History, Financial Markets, Financial Stability

Bitesize: 250 years of the bond-equity correlation

Matt Roberts-Sklar.

For most of the 18th-20th centuries, government bonds usually behaved like a risky asset. When equity prices fell, bond yields rose, i.e.  bond and equity returns were positively correlated (bond prices move inversely to yields). But since the mid-2000s, bond and equity returns have been negatively correlated, i.e. bonds became a hedge for risk. Before this, the last time this correlation was near zero for a prolonged period was the long depression in the late 19th century.

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Bitesize: The improvement in the gender labour force participation gap

Thomas Viegas and Gabija Zemaityte.

Many things have being trending down globally over the recent decades: real interest rates, productivity, world trade, you name it! And it’s generally acknowledged that these falls are problematic for policymakers. However, there is one downward trend which has been welcomed with open arms…

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Filed under Bitesize, Economic History, International Economics, Macroeconomics

Fish and (micro)chips: Why I’m relatively relaxed about robots

John Lewis.

My earlier post arguing that robotisation wouldn’t destroy jobs, slash wages or drastically shorten the working week prompted many thoughtful responses. Richard Serlin and others countered, arguing that if automation affects all sectors, then displaced workers may have nowhere to go.  Others asked if the sheer scale, speed and scope of robotisation might make it much more disruptive.  Or if wages fall, who will be able to buy the extra output? And Noah Smith raised the prospect that robotisation might eventually differ from earlier waves of innovation by replacing rather than complementing human labour.  This post attempts to respond to those points, expand on the original post and explain why I’m still relatively relaxed about robots.

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Filed under Economic History, Macroeconomics

Robot Macroeconomics: What can theory and several centuries of economic history teach us?

John Lewis.

Advances in machine learning and mobile robotics mean that robots could do your job better than you.  That’s led to some radical predictions of mass unemployment, much more leisure or a work free future.   But labour saving innovations and the debates around them aren’t really anything new.  Queen Elizabeth I denied a patent for a knitting machine over fears it would create unemployment, Ricardo thought technology would lower wages and Keynes famously predicted a 15 hour working week by 2030.   Understanding why these beliefs proved to be wrong gives us important insights into why similar claims about robotisation might be incorrect.  But automation could nevertheless have sizeable distributional implications and ramifications well beyond the industries in which it’s deployed.

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Rewriting history: understanding revisions to UK GDP

Seeing into the future is always difficult. But in the world of macroeconomics, just trying to look at the past can be a challenge. Official estimates of economic growth in the UK are regularly revised, so forecasts for growth over the next year have to be made on the basis of an ever-changing report card for the previous year. This post tackles some of the most common questions about UK GDP revisions, a topic close to the heart of many users of the UK’s National Accounts. Are the initial estimates of growth biased? Can you predict revisions? Does UK data get revised more than other countries? And which parts of early estimates of GDP should be approached with caution?

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Filed under Economic History, Macroeconomics, Monetary Policy

Rescuing a SIFI, Halting a Panic: the Barings Crisis of 1890

Eugene White.

The collapse of Northern Rock in 2007 and Bear Sterns, Lehman Brothers, and AIG in 2008 renewed the debate over how a lender of last resort should respond to a troubled systemically important financial institution (SIFI). Based on research in the Bank of England Archive, this post re-examines a crisis in 1890 when the Bank, supported by central bank cooperation, rescued Baring Brothers & Co. and quashed a banking panic and a currency crisis, while mitigating moral hazard.  This rescue is significant because it combined features similar to those mandated by recent U.K., U.S., and European reforms to ensure an orderly liquidation of SIFIs and increase the accountability of senior management (e.g. Title II of the Dodd-Frank Act (2010); the U.K. “Senior Managers Regime”).

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Filed under Banking, Economic History, Financial Stability, Resolution

From Berlin to Basel: what can 1930s Germany teach us about banking regulation?

Tobias Neumann.

Two of the country’s largest banks collapse.  The subsequent panic brings the banking system to its knees and only a costly government bail-out prevents even greater catastrophe.  A radical re-think of regulation is needed.  No, it’s not London or New York in 2008.  It is Berlin in the 1930s.  It’s when risk-weighted capital regulation was born, notably to be used alongside a range of other tools; for example, liquidity requirements and such modern ideas as bonus deferrals and capital conservation.  But the idea that no single regulatory measure is likely to be sufficient on its own was forgotten.  In 2008 it had to be painfully re-learned making this episode a striking example of the importance of studying past financial crises.

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Filed under Banking, Economic History, Financial Stability, Microprudential Regulation

The cheque republic: money in a modern economy with no banks.

Ben Norman and Peter Zimmerman.

What happens when a country’s banking system shuts down?  Just how damaging is it to the economy?  During the 20th century, the Republic of Ireland’s banking system suffered industrial disputes, some of which caused the main banks to close for several months.  When Greek banks closed temporarily last year, some commentators (e.g. Independent (2015), FT (2015)) recalled how, previously, the Irish public ingeniously circumvented the banking system and kept economic activity going.  Using material in the Bank of England’s Archive relating to the 1970 dispute, we shed light on how halcyon those days really were.

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