NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Crises Now and Then: What Lessons from the Last Era of Financial Globalization

Barry Eichengreen, Michael D. Bordo

NBER Working Paper No. 8716
Issued in January 2002
NBER Program(s):DAE, IFM, ME

We consider the operation of international capital markets in two periods of globalization, before 1914 and after 1971, with a focus on the crisis problem. We explore the idea that the incidence of crises in these two periods reflects how capital flows were embedded in the larger economic system. Other authors have made similar connections, suggesting that the international monetary framework was responsible for the relatively short-lived and mild nature of pre-World War I financial crises. However, we show that currency crises in fact were of longer duration before 1914. Only for banking and twin crises is there evidence that recovery was faster then than now. This leads us to a somewhat different view of the role of the monetary regime in the propagation of financial crises. A key difference between then and now, we suggest, is that prior to 1914 banking crises were less prone to undermine confidence in the currency, and to thereby compound financial problems, in the countries that were at the core of the international monetary system.

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Document Object Identifier (DOI): 10.3386/w8716

Published: Mizen, Paul (ed.) Monetary History, Exchange Rates and Financial Markets: Essays in Honor of Charles Goodhart, Vol 2. London: Edward Elgar Publisher, 2003.

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