The Operations of the Bank of England, 1890-1908: A Dynamic Probit Approach

This paper analyzes the workings of the pre-World War I gold standard using weekly data and a dynamic probit econometric technique. The authors' evidence sheds light on three potentially conflicting motivations underlying bank rate changes: profitability, convertibility, and concern for home trade. The conflict among these goals manifests itself in the Bank's asymmetric responses to inflows and outflows of gold and in the Bank's asymmetric responses to changes in market interest rates. The authors' results are consistent with the view that central bank cooperation played an important role in the workings of the gold standard.