{"type":"rich","version":"1.0","title":"Absorbing shocks since 1891","description":"Recorded at the PSE-CEPR Policy Forum 2026.\n\nA country wants a stable exchange rate, it wants money to move freely across its borders, and it wants to set its own interest rates. It's a well-known trilemma. Central bankers must pick any two, because you cannot have all three.\n\nHistory, it turns out, did not read that memo.\n\nEric Monnet has spent years reading the balance sheets that central bankers kept on each other. Since 1891 the Bank of France paid teams of multilingual economists to copy out the weekly and monthly accounts of every other central bank in the world. Those ledgers, now digitised, show that central banks have been far more than interest-rate setters. For more than a century they have quietly expanded their balance sheets to cushion their economies against shocks arriving from abroad. In this week's VoxTalk, Monnet argues we have seriously underestimated how much room to manoeuvre they have used since the 19th century.\n\nThe research behind this episode:\n\nBazot, Guillaume, Eric Monnet, and Matthias Morys. 2024. \"Central Banks and the Absorption of International Shocks (1891-2019).\" (https://cepr.org/publications/dp19646) CEPR Discussion Paper No. 19646. (Gated.)\n\nTo cite this episode:\n\nPhillips, Tim, and Eric Monnet. 2026. \"Absorbing shocks since 1891.\" VoxTalks Economics (podcast).\n\nAbout the guest\n\nEric Monnet (https://www.ericmonnet.eu/) is Professor at the Paris School of Economics and EHESS, and a Research Fellow at CEPR. An economic historian, his work spans central banking, the international monetary system, and the history of European financial systems across the 19th and 20th centuries. He previously worked as an economist at the Bank of France, and his book Controlling Credit examines monetary policy in postwar France.\n\nResearch cited in this episode\n\nThe Mundell trilemma. Formulated by Robert Mundell in the 1960s, the trilemma holds that an open economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy; it can have any two. Mundell received the Nobel Prize in part for the idea.\n\nThe global financial cycle and the dilemma. Helene Rey argues that even a floating exchange rate does not buy full monetary autonomy, because a common global financial cycle, driven by the risk appetite of large financial institutions, moves interest rates and exchange rates across countries at once. A shock in one emerging market prompts investors to demand higher compensation across others they treat as similar. The trilemma, in this view, is really a dilemma.\n\nThe Bank of France archive. The research department of the Bank of France was founded to track the financial operations of foreign central banks, collecting their weekly and monthly balance sheets from 1891 onward. The dataset assembled from these records covers 23 countries, essentially every central bank in existence by the late 1930s, and combines balance-sheet data with monthly figures on industrial production, consumer prices, and stock markets.\n\nDiscount loans, open market operations, and foreign exchange interventions. The specific tools have changed completely; the behaviour has not. In the 19th century central banks intervened by discounting commercial bills and holding gold or foreign deposits; today they conduct open market operations in government bonds and hold US Treasury bills. Across all these forms, the response to an external shock, expanding domestic assets to supply liquidity, has been consistent.\n\nTaming the Global Financial Cycle. The predecessor study by the same authors: Bazot, Monnet, and Morys, \"Taming the Global Financial Cycle: Central Banks as Shock Absorbers in the First Era of Globalization,\" Journal of Economic History 82(3), 2022, which established the pattern for the classical gold standard period.\n\nMore VoxTalks Economics episodes\n\nThe Bank of England's Capital Mistake (https://cepr.org/multimedia/bank-englands-capital-mistake) . Former Bank insiders David Aikman and John Vickers argue that cutting equity capital requirements for UK banks could raise the odds of a financial crisis, a companion piece on what central bank balance sheets are for.\n\nRelated reading on VoxEU.org\n\nCentral banks and the absorption of international shocks (https://cepr.org/voxeu/columns/central-banks-and-absorption-international-shocks) , the authors' own VoxEU column setting out the dataset and the two main findings in brief.","author_name":"VoxTalks Economics","author_url":"https://audioboom.com/channels/4966228-voxtalks-economics","provider_name":"Audioboom","provider_url":"https://audioboom.com","width":480,"height":95,"thumbnail_url":"https://audioboom.com/i/43773130/600x600/c","thumbnail_width":600,"thumbnail_height":600,"html":""}