Financial Stability Policies and Bank Lending: Quasi-Experimental Evidence from Federal Reserve Interventions in 1920-21

Rieder, Kilian

doi:10.2139/ssrn.3742259

SSRN Journal

2020

DOI: 10.2139/ssrn.3742259

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Financial Stability Policies and Bank Lending: Quasi-Experimental Evidence from Federal Reserve Interventions in 1920-21

Kilian Rieder

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Cited by 3 publications

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“…For the Banca d'Italia, there are also some hints at their use under the term castelletti in the 1920s and 1930s. Rieder shows that several US Federal Reserve Banks made use of credit limits (so‐called basic lines) to design financial stability policies in the early 1920s. In our article, we document the role of credit limits in central banks’ day‐to‐day discount lending and we provide evidence for their wider rationale as a proto‐regulatory tool.…”

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Supervision without regulation: Discount limits at the Austro–Hungarian Bank, 1909–13

Jobst

Rieder

2023

The Economic History Review

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We show that nineteenth century central banks could use credit limits for discount loans as a means to enforce supervisory standards long before they had any formal regulatory powers. Drawing on novel microdata from the Austro–Hungarian Bank's archives, we document that credit limits were continuously monitored and that their size was contingent on counterparties’ liquidity and capital position. Counterparties had an economic motive to abide by informal prudential ‘rules of the game’: higher credit limits enabled counterparties to streamline their day‐to‐day liquidity management. We exploit the heterogeneous exposure of counterparties to an exogenous liquidity shock to evidence that the Bank relaxed credit limits during crises to fulfil its role as a lender of last resort.

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Supervision without regulation: Discount limits at the Austro–Hungarian Bank, 1909–13

Jobst

Rieder

2023

The Economic History Review

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An Experiment in Tight Monetary Policy: Revisiting the 1920–1921 Depression

Carlin¹,

Mann²

2023

J. Financ. Quant. Anal.

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Is there a trade-off between the short-run and long-run real effects of monetary policy “leaning against the wind”? We provide novel evidence on this question from the United States in 1920–1921. Our identification strategy exploits county-level variation in access to the Federal Reserve’s discount window, and hand-collected data on banking and agriculture in Illinois. In the short term, tightened conditions at the discount window decreased bank lending and lowered crop prices and farm revenues. In the long term, however, they lowered debt-to-output levels and led to greater farmland utilization, suggesting an avoidance of debt overhang problems.

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Labor Market Tightness during WWI and the Postwar Recession of 1920-1921

Anderson

Chang

2022

FEDS

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The U.S. economy entered the 1920s with a robust job market and high inflation but fell into a recession following the Federal Reserve’s discount rate hikes to tame inflation. Using a newly constructed data set, we study labor market dynamics during this period. We find that labor markets were tight when the Federal Reserve began tightening monetary policy, but they became loose following the tightening as the recession deepened. The demand-supply imbalance in the labor market was driven by a sharp decline in the number of job openings. We also show that the recession had an uneven effect on labor markets across sectors and by gender.

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Financial Stability Policies and Bank Lending: Quasi-Experimental Evidence from Federal Reserve Interventions in 1920-21

Cited by 3 publications

References 41 publications

Supervision without regulation: Discount limits at the Austro–Hungarian Bank, 1909–13

Supervision without regulation: Discount limits at the Austro–Hungarian Bank, 1909–13

An Experiment in Tight Monetary Policy: Revisiting the 1920–1921 Depression

Labor Market Tightness during WWI and the Postwar Recession of 1920-1921

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