New Economics Papers
on Business, Economic and Financial History
Issue of 2013‒10‒11
twenty-two papers chosen by

  1. From divergence to convergence: re-evaluating the history behind China’s economic boom By Brandt, Loren; Ma, Debin; Rawski, Thomas G.
  2. A trojan horse in Daoguang China? Explaining the flows of silver in and out of China By Irigoin, Maria Alejandra
  3. Midas, transmuting all, into paper: The Bank of England and the Banque de France during the Revolutionary and Napoleonic Wars By Chadha , Jagjit S.; Newby, Elisa
  4. Gifts of Mars: Warfare and Europe's Early Rise to Riches By Nico Voigtländer; Hans-Joachim Voth
  5. Historical foundations for a global perspective on the emergence of a Western European regime for the discovery, development and diffusion of useful and reliable knowledge By O'Brien, Patrick
  6. Agglomeration Economies in Classical Music By Karol J. Borowiecki
  7. Accounting for Breakout in Britain: The Industrial Revolution through a Malthusian Lens By Tepper, Alexander; Borowiecki, Karol Jan
  8. Poland's new golden age : shifting from Europe's periphery to its center By Piatkowski, Marcin
  9. Risky institutions: political regimes and the cost of public borrowing in early modern Italy By Chilosi, David
  10. Contributions to a history of prices in Norway: Monthly price indices, 1777-1920 By Jan Tore Klovland
  11. Demystifying growth and development in North Song China, 960–1127 By Deng, Kent
  12. Merger and acquisition activity as driver of spatial clustering: the spatial evolution of the Dutch banking industry, 1850-1993 By Ron Boschma; Matté Hartog
  13. A World without Farmers ? The Lewis Path Revisited By Bruno Dorin; Jean-Charles Hourcade; Michel Benoit-Cattin
  14. Fifty Years of Family Planning: New Evidence on the Long-Run Effects of Increasing Access to Contraception By Martha J. Bailey
  15. Big Push or Big Grab? Railways, Government Activism and Export Growth in Latin America, 1865-1913. By Bignon, V.; Esteves, R.; Herranz-Loncán, A.
  16. Sovereigns versus Banks: Credit, Crises, and Consequences By Òscar Jordà; Moritz HP. Schularick; Alan M. Taylor
  17. Evaluating the Swiss transitory labour contribution to Germany in the Second War By Golson, Eric
  18. Revisiting Italian Emigration Before the Great War: A Test of the Standard Economic Model By P. G. Ardeni; A. Gentili
  19. La structure du réseau de commerce international en 1850 By Samuel MAVEYRAUD
  20. Un Test sulle Ipotesi delle Proiezioni a medio-lungo termine della Spesa Sanitaria By Salerno, Nicola Carmine
  21. Wirtschaftsnationalismus im Wandel der Zeit: Der politische Diskurs um ausländische Unternehmensübernahmen in Großbritannien seit den 1950er-Jahren By Callaghan, Helen; Hees, Alexandra
  22. Monetary Policy Frameworks in Asia : Experience, Lessons, and Issues By Peter J. Morgan

  1. By: Brandt, Loren; Ma, Debin; Rawski, Thomas G.
    Abstract: China’s long-term economic dynamics pose a formidable challenge to economic historians. The Qing Empire (1644-1911), the world’s largest national economy before 1800, experienced a tripling of population during the 17th and 18th centuries with no signs of diminishing per capita income. While the timing remains in dispute, a vast gap emerged between newly rich industrial nations and China’s lagging economy in the wake of the Industrial Revolution. Only with an unprecedented growth spurt beginning in the late 1970s did this great divergence separating China from the global leaders substantially diminish, allowing China to regain its former standing among the world’s largest economies. This essay develops an integrated framework for understanding that entire history, including both the divergence and the recent convergent trend. We explain how deeply embedded political and economic institutions that contributed to a long process of extensive growth before 1800 subsequently prevented China from capturing the benefits associated with the Industrial Revolution. During the 20th century, the gradual erosion of these historic constraints and of new obstacles erected by socialist planning eventually opened the door to China’s current boom. Our analysis links China’s recent development to important elements of its past, while using recent success to provide fresh perspectives on the critical obstacles undermining earlier modernization efforts, and their eventual removal.
    JEL: B1 O53 N0
    Date: 2013–03
  2. By: Irigoin, Maria Alejandra
    Abstract: Written on board of US Steamer San Jacinto – anchored in Shanghai in October 1856 - a report to the New York Times on the “Progress of the Rebellion in China” indicated that the US government “was forced to buy the Carolus dollars at an increasing sacrifice in order to pay its high salaried officers, not for what they are bought, for a Carolus dollars count not more than a Mexican or American with the pursers of the US navy”. In Shanghai the coin was at 50% premium above of the Mexican coin or any other silver coin of equal weight in circulation. No reason was given for such wild appreciation other than “the prejudice of the Chinese” in favour of the old Spanish American coin. According to the source “one hundred Carolus could buy in any established commercial house in China 150 American dollar or other silver dollars (and) a hundred pound draft on the bank of England maybe had for 250 or 270 Carolus, and larger or smaller ones in the same ratio” at the time when 450 or more pesos were required elsewhere in Europe or America for a sterling. The reporter concluded that in no other place the famous coin was worth more than its standard value. That China had a problem with silver is well known to the economic and monetary history literature. In the last 20 years or so the silverization of China has been pivotal in the explanation of the Great Divergence and more traditionally has occupied the interest of economic historians of China and Asia since, probably it firstly occurred in the late 18th century. There is a wealth of studies on trade and monetary history of China, the Pacific Rim and globally which have emphasized the role of silver in the Middle Kingdom since the 16th century. A more traditional historiography has insisted on the de-silverization of China by mid-19th century, which some associate with the Daoguang Depression – provoked by the acute alteration in the exchange rate of copper cash to silver that characterized the period.
    JEL: N0 R14 J01
    Date: 2013–01
  3. By: Chadha , Jagjit S. (Keynes College, University of Kent, Canterbury); Newby, Elisa (Bank of Finland, Monetary Policy and Research Department)
    Abstract: This paper assesses Revolutionary and Napoleonic wartime economic policy. Suspension of gold convertibility in 1797 allowed the Bank of England to nurture British monetary orthodoxy. The Order of the Privy Council suspended gold payments on Bank of England notes and afforded simultaneous protection to the government and the Bank in pursuit of the conflicting goals of price stability and war finance. The government, the Bank of England and the commercial banks formed a loose alliance drawing on due political and legal processes and also paid close attention to public opinion. We suggest that the ongoing solvency of the Bank of England was facilitated by suspension and allowed the Bank to continue to make substantial profits throughout the Wars. It became acceptable for merchants to continue to trade with non-convertible Bank of England notes and for the government to finance the war effort, even with significant recourse to unfunded debt. These aspects combined to create a suspension of convertibility that did not undermine the currency. By contrast, the Assignats debacle had cost the French monetary system its reputation in the last decade of the 18th century and so Napoleonic .finance had to evolve within a more rigid and limiting framework.
    Keywords: monetary orthodoxy; suspension of convertibility; war finance
    JEL: C61 E31 E42 E58 N13
    Date: 2013–09–16
  4. By: Nico Voigtländer; Hans-Joachim Voth
    Abstract: Today, per capita income differences around the globe are large – varying by as much as a factor of 35 across countries (Hall and Jones 1999). These differentials mostly reflect the "Great Divergence" (Sam Huntingon) – the fact that Western Europe and former European colonies grew rapidly after 1800, while other countries grew much later or stagnated. What is less well-known is that a "First Divergence" preceded the Great Divergence: Western Europe surged ahead of the rest of the world long before technological growth became rapid. Europe in 1500 was already twice as rich on a per capita basis as Africa, and one-third richer than most of Asia (Maddison 2007). In this essay, we explain how Europe's tumultuous politics and deadly penchant for warfare translated into a sustained advantage in per capita incomes.
    Date: 2013–09
  5. By: O'Brien, Patrick
    Abstract: At a ‘conjuncture’ in pre-modern global history, labeled by previous generations of historians as the ‘Scientific Revolution’, the societies and states of western Europe established and promoted a regime of interconnected institutions for the accumulation of useful and reliable knowledge. This placed their economies on trajectories that led to divergent prospects for long-term technological change and material progress. Although the accumulation of such knowledge takes place over millennia of time, and in contexts that are global, critical interludes or conjunctures in a “dialogue of civilizations” have remained geographically localized, and indigenous in nature. Determining the locations, origins and forms of this particular conjuncture is often dismissed as an exercise in Eurocentric history. Modern scholarship has also preferred to emphasize the roles played by craftsmen in its progress and diffusion - ignoring metaphysical and religious foundations of knowledge about the natural world. My survey aims to restore traditional perceptions that the West passed through a transformation in its hegemonic beliefs about prospects for the comprehension and manipulation of that world in the sixteenth and seventeenth centuries. It will suggest that the Scientific Revolution’s remote antecedents might be traced back to Europe’s particular transition from polytheism to monotheism. Thirdly, it summarizes literature that analyses how centuries of tension between Christian theology and natural philosophy led, during the Renaissance, to a displacement of scholastic and beatified Aristotelian conceptions and obstacles to understandings of the natural world. Finally, the survey will elaborate on how new knowledge flowing into Europe from voyages overseas, and medieval advances in technology, together with scepticism arising from religious warfare, stimulated a widespread search for more useful and reliable forms of knowledge throughout the Catholic and Protestant West.
    Date: 2013–03
  6. By: Karol J. Borowiecki (Department of Business and Economics, University of Southern Denmark)
    Abstract: This study investigates agglomeration effects for classical music production in a wide range of cities for a global sample of composers born between 1750 and 1899. Theory suggests a trade-off between agglomeration economies (peer effects) and diseconomies (peer crowding). I test this hypothesis using historical data on composers and employ a unique instrumental variable – a measure of birth centrality, calculated as the average distance between a composer’s birthplace and the birthplace of his peers. I find a strong causal impact of peer group size on the number of important compositions written in a given year. Consistent with theory, the productivity gain eventually decreases and is characterized by an inverted U-shaped relationship. These results are robust to a large series of tests, including checks for quality of peers, city characteristics, various measures of composers’ productivity, and across different estimations in which also time-varying birth centrality measures are used as instrumental variables.
    Keywords: agglomeration economies, density effects, peer effects, productivity, urban history, cities, composer
    JEL: D24 J24 N90 R12 Z11
    Date: 2013–09
  7. By: Tepper, Alexander (Federal Reserve Bank of New York); Borowiecki, Karol Jan (Department of Business and Economics)
    Abstract: This paper develops a simple dynamic model to examine the breakout from a Malthusian economy to a modern growth regime. It identifies several factors that determine the fastest rate at which the population can grow without engendering declining living standards; this is termed maximum sustainable population growth. We then apply the framework to Britain and find a dramatic increase in sustainable population growth at the time of the Industrial Revolution, well before the beginning of modern levels of income growth. The main contributions to the British breakout were technological improvements and structural change away from agricultural production, while coal, capital, and trade played a minor role.
    Keywords: Industrial Revolution; Malthusian Dynamics; Maximum Sustainable Population Growth; Development; Demographics
    JEL: N13 N33 O10 O41 O52
    Date: 2013–10–02
  8. By: Piatkowski, Marcin
    Abstract: The objective of the paper is (i) to help fill the gap in knowledge on the long-term economic history of Poland; (ii) to provide a new perspective to the debate on the economic future of Poland, with a special focus on its historically unprecedented post-transition growth experience; and (iii) to analyze critically long-term growth projections for Poland. The paper argues that (i) Poland has just had probably the best 20 years in its economic history, growing the fastest among all European economies and one of the fastest worldwide; (ii) by 2013, it Poland achieved levels of income, quality of life, and well-being likely never experienced before, including relative to Western Europe, a natural benchmark; and (iii) Poland is well placed to continue converging with the Western European levels of income, permanently moving from the economic periphery of Europe, where it languished for centuries, to the European economic center. The twenty-first century thus promises to become Poland's new Golden Age. The paper calls for further research on the lessons from Poland's successful growth model for other countries in the region and beyond as well as on the long-term implications of the rise of Poland for the future of Europe.
    Keywords: Economic Theory&Research,Emerging Markets,Population Policies,Achieving Shared Growth,Labor Policies
    Date: 2013–10–01
  9. By: Chilosi, David
    Abstract: This paper tests whether and how political regimes influenced the cost of public borrowing by comparatively and quantitatively examining a newly compiled dataset on public annuities in early modern Italy. The analysis finds that overall political regimes mattered a lot, but there were important differences across their dimensions. Fiscal centralisation, particularly in the eighteenth century, was not associated with significant decreases in the interest rates. Jurisdictional fragmentation was on the whole the most important variable, with feudalism and to a lesser extent clerical influence significantly increasing the cost of borrowing. Constitution al representation was even more important than jurisdictional fragmentation within republics, but a republican constitution had an ambivalent effect: while it decreased the risk of default it could also lead to an increase in interest rates, depending on the specific institutional setting, contingency and path-dependency.
    JEL: N0 E6
    Date: 2013–05
  10. By: Jan Tore Klovland (Norwegian School of Economics (NHH))
    Abstract: This study reports the outcome of an effort to collect market price data for Norway with a view to constructing monthly price indices from the year 1777 to 1920. The material covers data on commodity prices from agriculture, shery, dairying, manufacturing and mining. Indices of the wholesale and producer price index families are constructed, using the repeat sales method for constructing the underlying price series. Separate indices for commodity exports and imports are also presented. The new wholesale price index, as well as the export and import price indices, are linked to existing price indices after 1920 and brought forward to the end of 1940. The price indices shed new light on two great wartime inflationary episodes in Norway: 1807-1817 and 1913-1920. In spite of a 61-fold increase in the price level in the first period and a 4-fold increase in the second, it is found that, after inflation had been brought under control, prices reverted to a level consistent with the purchasing power parity principle.
    Keywords: Price index, Price history, Purchasing power parity
    JEL: E31 N13 N14
    Date: 2013–10–03
  11. By: Deng, Kent
    Abstract: The Northern Song Period (960–1127) has been recognised as one of the most important eras in China’s economic and demographic history. This study investigates climatic and geopolitical conditions and factors that led to economic restructuring whereby intensive growth took place to generate more wealth to support a growing population. This paper reveals the unique nature and mechanisms behind the Song remarkable economic growth with quantitative evidence.
    JEL: N0
    Date: 2013–06
  12. By: Ron Boschma; Matté Hartog
    Abstract: This paper investigates the extent to which merger and acquisition activity contributed to the spatial clustering of the Dutch banking industry in Amsterdam. This analysis is based on a unique database of all banks in the Netherlands that existed in the period 1850-1993. We found that spatial clustering of the Dutch banking industry was not driven by the fact that banks performed better in the Amsterdam region: being located in Amsterdam decreased rather than increased the survival chance of banks. However, banks in Amsterdam were disproportionally active in acquiring other banks outside Amsterdam. Experience in M&As accumulated mainly in the Amsterdam region, which in turn had a positive impact on the survival chance of banks located there. Our findings suggest that M&A activity was a driving force behind the spatial clustering of the Dutch banking industry between 1850 and 1993.
    Keywords: industrial dynamics, cluster, mergers and acquisitions, banking sector, evolutionary economic geography
    JEL: O18 R00 R11
    Date: 2013–09
  13. By: Bruno Dorin (CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD], CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech); Jean-Charles Hourcade (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech); Michel Benoit-Cattin (CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD])
    Abstract: This paper questions the Lewis Path perspective of a "world without agriculture" which underpins the "structural transformation" paradigm of "modern growth." It shows that the Lewis Path is only one of four potential structural paths, and that half of the world's population is spiralling into a "Lewis Trap" with more farmers and an increasing income gap between them and other workers. After showing how land constraints and the productivity dynamics outside agriculture might prevent this population from switching to a Lewis Path, it delineates the condition of an alternative path that would not transfer the disparity problem to cities.
    Date: 2013–09–30
  14. By: Martha J. Bailey
    Abstract: This paper assembles new evidence on some of the longer-term consequences of U.S. family planning policies, defined in this paper as those increasing legal or financial access to modern contraceptives. The analysis leverages two large policy changes that occurred during the 1960s and 1970s: first, the interaction of the birth control pill’s introduction with Comstock-era restrictions on the sale of contraceptives and the repeal of these laws after Griswold v. Connecticut in 1965; and second, the expansion of federal funding for local family planning programs from 1964 to 1973. Building on previous research that demonstrates both policies’ effects on fertility rates, I find suggestive evidence that individuals’ access to contraceptives increased their children’s college completion, labor force participation, wages, and family incomes decades later.
    JEL: I18 J1 J13 J16 J24 N12
    Date: 2013–10
  15. By: Bignon, V.; Esteves, R.; Herranz-Loncán, A.
    Abstract: Railways were one of the main engines of the Latin American trade boom before 1914. Railway construction often required financial support from local governments, which depended on their fiscal capacity. But since the main government revenues were trade-related, this generated a two-way feedback between government revenues and railways with a potential for multiple equilibria. The empirical tests in this paper support the hypothesis of a positive two-way relationship. The main implication of our analysis is that the build-up of state capacity was a necessary condition for railway expansion and, given the importance of the export sector in these economies, for economic growth and divergence in the region.
    Keywords: Railways; Latin America; Export growth; Government revenues.
    JEL: H54 N46 N76 O38 O54
    Date: 2013
  16. By: Òscar Jordà; Moritz HP. Schularick; Alan M. Taylor
    Abstract: Two separate narratives have emerged in the wake of the Global Financial Crisis. One speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies. However, the two may interact in important and understudied ways. This paper studies the co-evolution of public and private sector debt in advanced countries since 1870. We find that in advanced economies financial stability risks have come from private sector credit booms and not from the expansion of public debt. However, we find evidence that high levels of public debt have tended to exacerbate the effects of private sector deleveraging after crises, leading to more prolonged periods of economic depression. Fiscal space appears to be a constraint in the aftermath of a crisis, then and now.
    JEL: C14 C52 E51 F32 F42 N10 N20
    Date: 2013–10
  17. By: Golson, Eric
    Abstract: Histories of southern German firms during the Second World War suggest that Switzerland provided many highly-skilled labourers for Germany’s war effort, but no study has to date quantified these contributions. This paper examines the labour exchanges between the two countries, focusing on individuals working within a free movement and trade area in the border region of Switzerland and Germany. A maximum of 1,800 Swiss workers is ascertained to have worked in the German part of this area, representing 7.5% of the total labour force, 12% of the highly-skilled labour force and over 20% of the metal workers in the ten-kilometre German zone. Swiss contributions are somewhat offset by Germans working in the Swiss zone. Most importantly for Swiss neutrality, this papersuggests that, despite initially supportive increased labour transfers at the start of the war, the Swiss government sought from 1941 to prevent workers from transferring to Germany.
    Keywords: Switzerland; Germany; Labour Transfers; Exchange Controls; World War II
    JEL: N0 R14 J01
    Date: 2013–02
  18. By: P. G. Ardeni; A. Gentili
    Abstract: Among the many studies on migration before the Great War, Italy has received little attention, with a few notable exceptions and without providing a convincing explanation of its economic and demographic determinants. Standard neoclassical approaches explain emigration as driven by relative wages, relative employment rates and the stock of previous emigrants. We aim at improving on earlier contributions by covering all migration outflows from Italy to the most significant destination countries and by adopting the most consistent and up-to-date econometric approaches. As it turns out, the standard model is not fully confirmed and a more nuanced analysis is needed.
    JEL: F22 N32
    Date: 2013–10
  19. By: Samuel MAVEYRAUD
    Abstract: Dans cet article, nous mettons au jour la structure du commerce international en 1850 en procédant à une analyse de réseaux binaire et pondéré. Les résultats montrent que les pays ont tendance à commercer avec des pays dont la valeur des échanges est proche. Nous observons également que les partenaires des pays dont la valeur des échanges commerciaux est importante ont tendance à échanger avec des pays dont la valeur des échanges est moindre. Ainsi, il n’y a pas de phénomène « cœur – périphérie » dans ce réseau de commerce.
    Keywords: Commerce international, réseau, XIXème siècle
    JEL: N7
    Date: 2013
  20. By: Salerno, Nicola Carmine
    Abstract: The same methodology Oecd and Ecofin apply to project future trends of health care expenditue is here applied to reconstruct backwards Italian health care expenditure. The time horizon is 1988-2012. Results are described and argued. Important evidence emerges on the historical value of the elasticity of per-capita expenditure to per-capita Gdp. This value, of course, brings also some information on what this elasticity can prove in the future. It is the first test developed on past trends using profiles of per-capita expenditure per age brackets, and applied to Italy.
    Keywords: health care, projections, halth care projections, medium-long term, Oecd, Awg, Ecofin, Imf, International Monetary Fund, Ageing Working Group, Ageing Report, European Commission, sustainability, public finances, elasticity, Gdp, per-capita expenditue, per-capita Gdp, historical trends, welfare system, pay-as-you-go, age brackets, Europan Economy, Italy, nicola c. alerno, nicola salerno, nc salerno, salerno nc,, nicolacsalerno
    JEL: H00 H4 H40 H5 H51 H54 I0 I00 I1 I10 I18 I31 J1 J11 J14
    Date: 2013–10–05
  21. By: Callaghan, Helen; Hees, Alexandra
    Abstract: Jüngere Studien kritisieren die weitverbreitete Gleichsetzung von Wirtschaftsnationalismus und Protektionismus mit der Begründung, dass auch Marktliberalisierung oft mittels nationalistischer Motive gerechtfertigt wird. Wir ergänzen, dass spiegelbildlich dazu die Befürworter von Protektionismus zunehmend marktliberalisierende Motive anführen. Anhand britischer Parlamentsdebatten über Auslandsübernahmen seit 1956 dokumentiert der vorliegende Artikel die protektionistische und liberale Form von Wirtschaftsnationalismus sowie die protektionistische Form von Wirtschaftsliberalismus. Die zeitliche Entwicklung dieser drei Diskursstränge veranschaulicht einen graduellen Wertewandel und ergänzt damit neuere Studien zu Mechanismen kapitalistischer Dynamik um eine diskursive Dimension. Im Gegensatz zu beiden Formen von Wirtschaftsnationalismus wertet protektionistischer Liberalismus offene Märkte nicht als Mittel zur Förderung oder Schwächung des nationalen Interesses. Stattdessen werden offene Märkte zum Selbstzweck, der keiner Rechtfertigung mehr bedarf und sogar Protektionismus legitimieren kann. -- Recent studies challenge the widespread practice of equating economic nationalism with protectionism, by showing that market liberalization is also frequently justified with reference to nationalist motives. We add that, conversely, advocates of protectionism increasingly advance market-liberalizing motives to legitimate their demands. The present article traces the conservative and liberal forms of economic nationalism, as well as the protectionist form of economic liberalism, through British parliamentary debates regarding foreign takeovers from 1956 onward. The observed discursive change illustrates a gradual change in values and thereby informs recent studies on mechanisms of capitalist development. Unlike both forms of economic nationalism, protectionist liberalism does not portray open markets as a means of promoting or undermining the national interest. Instead, open markets become an end in themselves that no longer requires justification and can even serve to legitimate protectionism.
    Date: 2013
  22. By: Peter J. Morgan (Asian Development Bank Institute (ADBI))
    Abstract: This paper analyzes the evolution of East Asian monetary policy frameworks over the past two decades, chiefly in response to shocks from the Asian financial crisis of 1997–1998 and the global financial crisis (GFC) of 2007–2009. The Asian financial crisis showed the importance of exchange rate flexibility and credible policy frameworks, leading to increased central bank independence, greater focus on inflation policy and more flexible exchange rates. A key lesson of the GFC was the importance of containing systemic financial risk and the need for a “macroprudential†approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. Emerging economies face particular challenges because of their underdeveloped financial systems and vulnerability to volatile international capital flows, especially “sudden stops†or reversals of capital inflows. The paper reviews the history of East Asian monetary policy frameworks since 1990; describes current monetary policy frameworks, including issue of price versus financial stability for a central bank and the policies a central bank can use to manage financial stability; the monetary policy transmission mechanism based on financial linkages and financial deepening; assesses policy outcomes including inflation targeting and responses to the “Impossible Trinityâ€; and makes overall conclusions. The paper finds that East Asian central banks have generally managed inflation and growth well over the past decade, but the difficulties faced by central banks of advanced countries in the aftermath of the GFC suggests that not all problems have been solved yet.
    Keywords: Monetary policy framework, Asia, Asian financial crisis, central bank independence, Capital Inflows, inflation policy
    JEL: E52 E58 F31 F32 G18
    Date: 2013–09

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