Angela Redish

The Evolution of the Gold Standard in England

In 1816 England officially abandoned bimetallism and made silver coins into tokens that were only limited legal tender. Earlier monetary authorities had lacked the ability to manage a subsidiary coinage, a necessary complement to the monometallic gold standard. A successful token coinage must be both costly to counterfeit and credibly backed to ensure that the tokens do not depreciate to their intrinsic value. These problems were solved in the nineteenth century through the introduction of steam-driven stamping presses and with the assistance of the Bank of England.

Good Versus Bad Deflation: Lessons from the Gold Standard Era

Deflation has had a bad rap, largely based on the experience of the 1930s when deflation was synonymous with depression. Recent experience with declining prices in Japan and China together with the concern over deflation in Europe and the United States has led to renewed attention to the topic of deflation. In this paper we focus our attention on the deflation experience of the United States, the United Kingdom, and Germany in the late nineteenth century during a period characterized by low deflation, rapid productivity growth, positive output growth, and where many nations had a credible nominal anchor based on gold: circumstances which have resonance with the world of today. We identify aggregate supply, aggregate demand, and money supply shocks using a structural panel vector autoregression. We then use historical decompositions to investigate the impact that these structural shocks had on output and prices. Our findings are that the deflation of the late nineteenth century reflected both positive aggregate supply shocks and negative money supply shocks. However, the negative money supply shocks had little effect on output. This we posit is because the aggregate supply curve was very steep in the short run during this period. This contrasts greatly with the deflation experience during the Great Depression. Thus our empirical evidence suggests that deflation in the nineteenth century was primarily good.

Why Did the Bank of Canada Emerge in 1935

Three possible explanations for the emergence of the Canadian central bank in 1935 are examined: that it reflected the need of competitive banking systems for a lender of the last resort; that it was necessary to anchor the unregulated Canadian monetary system after the abandonment of the gold standard in 1929; and that it was a response to political rather than purely economic pressures. Evidence from a variety of sources (contemporary statements to a Royal Commission, the correspondence of chartered bankers, newspaper reports, academic writings and the estimation of time series econometric models) rejects the first two hypotheses and supports the third.

Why Didn't Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or …)?

The financial crisis of 2008 engulfed the banking system of the United States and many large European countries. Canada was a notable exception. In this paper we argue that the structure of financial systems is path dependent. The relative stability of the Canadian banks in the recent crisis compared to the United States in our view reflected the original institutional foundations laid in place in the early 19th century in the two countries. The Canadian concentrated banking system that had evolved by the end of the twentieth century had absorbed the key sources of systemic risk -- the mortgage market and investment banking -- and was tightly regulated by one overarching regulator. In contrast the relatively weak, fragmented, and crisis prone U.S. banking system that had evolved since the early nineteenth century, led to the rise of securities markets, investment banks and money market mutual funds (the shadow banking system) combined with multiple competing regulatory authorities. The consequence was that the systemic risk that led to the crisis of 2007-2008 was not contained.

Currency depreciation in early modern England and France

Abstract This paper offers an explanation for currency instability in early modern Europe. Since no specie metal had the properties of durability and portability required in a perfect medium of exchange, there was chronic undervaluation of the coinage. The resulting premia on certain coins and the disappearance of others from circulation could be eliminated by depreciating the currency. We examine monetary behavior in early modern England and France and conclude that depreciation was frequently a response to undervaluation, rather than a trade policy or a means to raise revenue or reduce government debt.

A Comparison of the Stability and Efficiency of the Canadian and American Banking Systems 1870-1925

In this paper we compare the performance of the U.S. and Canadian banking systems from 1870-1925 in terms of stability and efficiency. In an earlier study we found that the Canadian banking system, based on nationwide branch banking, dominated the U.S. system, based on unit banking, on both criteria in the period 1920-1980. In this study we find that there is little significant difference between the two systems in the preceding 50 years. The difference between the two periods we attribute to the merger movement in Canada after 1900 which allowed the Canadian banking system to evolve from a system with incomplete regional diversification, and hence subject to a significant risk of an occasional failure by a large bank, to one characterized by national diversification and greater stability. The greater stability in turn allowed the financial structure of the banking system to evolve in a more efficient direction.

Anchors Aweigh: The Transition from Commodity Money to Fiat Money in Western Economies

In this paper, the author argues that the transition from commodity money to fiat money in the 1970s was a less dramatic change than suggested by a first glance at monetary history or monetary theory. She shows that, historically, the quantity of the commodity-based money was at the discretion of the monetary authority and how, over time, the desire to economize on the commodity backing led to national and international institutions that reduced the extent to which money issues under the commodity standard represented an explicit claim to an intrinsically valuable asset.

New Estimates of the Canadian Money Stock: 1871-1967

In this paper, the authors construct historical data series beginning in 1871 for Canadian M1, M2, and monetary base. The new series are at a monthly frequency and use the Bank of Canadas definition of the monetary aggregates. Institutional and reporting changes, however, make perfect backwards extrapolation of the Banks series impossible: there are only end-of-month data rather than average weekly (since January 1994, daily) data and the authors cannot precisely match savings accounts (at chartered banks and trust companies) that are included in the modern monetary aggregates. Their adjustments for these changes and their impact on the aggregates are documented

A Small Open Economy in Depression: Lessons from Canada in the 1930s

This paper tests the hypothesis that idiosyncratic U.S. disturbances and their international propagation can account for the global Depression. Exploiting common stochastic trends in U.S. and Canadian interwar data, we estimate a small open economy model for Canada that decomposes output fluctuations into sources identifiable with world and country-specific disturbances. We find that the onset, depth and duration of output collapse in both Canada and the U.S. are primarily attributable to a common, permanent output shock leaving little significant role for idiosyncratic disturbances originating in either economy.

Credible Commitment and Exchange Rate Stability: Canada's Interwar Experience

In 1929, the Canadian government floated the exchange rate, which stayed at parity with sterling until 1931, when the Canadian dollar appreciated with respect to sterling and depreciated with respect to the U.S. dollar. This paper uses Robert J. Barro and David B. Gordons reputation theory to explain the stability of the Canadian dollar before 1931 and the subsequent depreciation/appreciation. Econometric analysis is then used to support the argument that between 1931 and 1933 the level of the exchange rate was determined by expectations of a return to parity with either sterling or the U.S. dollar.