WHEN T H E BROOKINGS Panel on Economic Activity began in 1970, the world economy roughly accorded with the idea of three distinct economic systems: a capitalist first world, a socialist second world, and a developing third world which aimed for a middle way between the first two. The third world was characterized not only by its low levels of per capita GDP, but also by a distinctive economic system that assigned the state sector the predominant role in industrialization, although not the monopoly on industrial ownership as in the socialist economies. The years between 1970 and 1995, and especially the last decade, have witnessed the most remarkable institutional harmonization and economic integration among nations in world history. While economic integration was increasing throughout the 1970s and 1980s, the extent of integration has come sharply into focus only since the collapse of communism in 1989. In 1995 one dominant global economic system is emerging. The common set of institutions is exemplified by the new World Trade Organization (WTO), which was established by agreement of more than 120 economies, with almost all the rest eager to join as rapidly as possible. Part of the new trade agreement involves a codification of basic principles governing trade in goods and services. Similarly, the International Monetary Fund (IMF) now boasts nearly universal membership, with member countries pledged to basic principles of currency convertibility. Most programs of economic reform now underway in the developing world and in the post-communist world have as their strategic aim the

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Economic Reform and the Process of Global Integration

Econometric policy evaluation: A critique

This paper solves explicitly a simple equilibrium model with liquidity risk. In our liquidityadjusted capital asset pricing model, a security s required return depends on its expected liquidity as well as on the covariances of its own return and liquidity with the market return and liquidity. In addition, a persistent negative shock to a security s liquidity results in low contemporaneous returns and high predicted future returns. The model provides a unified framework for understanding the various channels through which liquidity risk may affect asset prices. Our empirical results shed light on the total and relative economic significance of these channels and provide evidence of flight to liquidity. r 2005 Elsevier B.V. All rights reserved.

Market Liquidity: Asset Pricing with Liquidity Risk

Financial systems are crucial to the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies. Yet the form of these financial systems varies widely. In the United States and the United Kingdom competitive markets dominate the financial landscape, whereas in France, Germany, and Japan banks have traditionally played the most important role. Why do different countries have such different financial systems? Is one system better than all the others? Do different systems merely represent alternative ways of satisfying similar needs? Is the current trend toward market-based systems desirable? Franklin Allen and Douglas Gale argue that the view that market-based systems are best is simplistic. A more nuanced approach is necessary. For example, financial markets may be bad for risk sharing; competition in banking may be inefficient; financial crises can be good as well as bad; and separation of ownership and control can be optimal. Financial institutions are not simply veils, disguising the allocation mechanism without affecting it, but are crucial to overcoming market imperfections. An optimal financial system relies on both financial markets and financial intermediaries.

比较金融系统 = Comparing financial systems

1. Introduction: 1.A Motivation 1.B Objectives and contributions 1.C Key findings: a brief synopsis 1.D Guide to the book 2. Contrasting approaches to bank regulation: 2.A Two approaches to bank regulation: 2.A.1 Public interest approach 2.A.2 Private interest view of regulation 2.B Bank regulation: how 2.C The Basel Committee and regulatory convergence 2.D Conclusion 3. How are banks regulated and supervised around the world?: 3.A Overview 3.B Structure, scope and independence of regulation and supervision 3.C What is a 'bank'? 3.D Entry into banking, capital requirements and supervisory powers 3.E Explicit deposit insurance schemes 3.F Private monitoring and external governance 3.G Does bank ownership type affect the choice of regulations and supervisory practices? 3.H Forces for greater harmonization of regulation and supervision among countries 4. What works best: 4.A Goals and boundaries 4.B Bank regulation and supervision and bank development 4.C Bank supervision, regulation, and stability 4.D Bank supervision, regulation, and bank efficiency 4.E Bank supervision, regulation, and bank lending 4.F Supervision, regulation, and bank governance 4.G Summary of results 5. Choosing bank regulations 5.A Recap and motivation 5.B Motivating example: Mexico and the United States 5.C Conceptual framework 5.D Empirical framework and data 5.E Summary remarks 6. Rethinking bank regulation: 6.A Approach and context 6.B Lessons and implications.

Rethinking Bank Regulation: Till Angels Govern

This paper offers a comprehensive (short) history of central banking in France, starting in the 18th century and finishing with the creation of the Euro in 2001. We first discuss how the French experience with central banking in the 18th century shaped the drafting of the charter and the governance of the Bank of France in 1800. We then single out how the Bank implements its monetary policy in the 19th century and assess the bank achievement in terms of monetary and financial stability. Finally we discuss how the sovereign debt overhang triggered by World War I and the reconstruction subverted the model of central banking previously implemented, and how the reluctance of the Bank to be implicated in the management of the sovereign yield ultimately leads to the loss of its independence vis-a-vis the state. Against this background the use of financial repression under the guidance of the state allowed a smoother management of the debt overhang during the post WW II period, but created its own issues that were addressed effectively only with the creation of the Euro.

The Other Way: A Narrative History of the Bank of France

The National Monetary Commission was deeply concerned with importing best practice One important focus was the connection between the money market and international trade It was said that Britain’s lead in the market for “acceptances” originating in international trade was the basis of its sterling predominance In this article, we use a so-far unexplored source to document the portfolio of bills that was brought up to the Bank of England for discount and study the behavior of the Bank of England during the crisis of 1866 (the so-called Overend- Gurney panic) when the Bank began adopting lending of last resort policies (Bignon, Flandreau and Ugolini 2011) We compare 1865 (a “normal” year) to 1866 Important findings include: (a) the statistical predominance of foreign bills in the material brought to the Bank of England; (b) the correlation between the geography of bills and British trade patterns; (c) a marked contrast between normal times lending and crisis lending in that main financial intermediaries and the “shadow banking system” only showed up at the Bank’s window during crises; (d) the importance of money market investors (bills brokers) as chief conduit of liquidity provision in crisis; (e) the importance of Bank of England’s supervisory policies in ensuring lending-of-lastresort operations without enhancing moral hazard An implication of our findings is that Bank of England’s ability to control moral hazard for financial intermediaries involved in acceptances was another reason for the rise of sterling as an international currency

Where It All Began: Lending of Last Resort and the Bank of England During the Overend, Gurney Panic of 1866

Historical monetary and financial statistics for Sweden, vol. 1 – Edited by Rodney Edvinsson, Tor Jacobson, and Daniel Waldenstrom

The high level of trade and financial integration reached by Europe both today and under the late 19th-century gold standard suggests that important lessons can be learned by looking at past record to inform current issues. In this article, we draw a fresh picture of the European gold standard and use it to derive a number of useful implications. The paper's basic finding is that the stability of the European gold standard depended on the stance of the common monetary policy. Under the gold standard, this stance was disturbingly deflationary prior to 1895. As a result, debts became exceedingly heavy and monetary standards crumbled under their weight, not so much because fiscal policies became looser, but rather because debt burdens became unsustainable in the wake of continued deflation. Once gold was discovered and deflation gave way to inflation, real interest rates fell and debt grew more slowly. This study's clear implication for the EMU zone is that stability will hinge on the European Central Bank's (ECB) policy not being too restrictive.

Stability Without a Pact? Lessons from the European Gold Standard, 1880-1914

This paper is the transcript of the lunch speech delivered at the seminar on sovereign risk hosted by the BIS in January 2013. Full publication: Sovereign Risk: A World Without Risk-Free Assets?

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Marc Flandreau

Papers

The Other Way: A Narrative History of the Bank of France

Where It All Began: Lending of Last Resort and the Bank of England During the Overend, Gurney Panic of 1866

Historical monetary and financial statistics for Sweden, vol. 1 – Edited by Rodney Edvinsson, Tor Jacobson, and Daniel Waldenstrom

Stability Without a Pact? Lessons from the European Gold Standard, 1880-1914

Do Good Sovereigns Default? Lessons of History