Vincent Bignon, Clemens Jobst, 30 April 2017

Data constraints have made it difficult to establish a causal link between the design of central bank eligibility frameworks and economic outcomes. In this column, the authors argue the series of non-agricultural economic crises in 19th century France caused by phylloxera – a disease that devastated vineyards in the country – allows the confounding factors that normally impede the investigation of lending of last resort policies to be disentangled. Regions that benefitted from easier access to central bank refinancing exhibited lower default rates, as firms could more easily smooth liquidity shocks. Importantly, the lower default rates were not the result of the central bank bailing out the private sector by buying up worthless assets.


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