Monetary Policy without Interest Rates: Evidence from France’s Golden Age (1948 to 1973) Using a Narrative Approach

Abstract

Central banking in France from 1948 to 1973 was a paradigmatic example of a policy that relied on quantities rather than interest rates. Standard SVAR analyses support the common view that monetary policy was ineffective during this period. However, this approach fails to identify the stance of monetary policy since it does not account for the specificity of quantitative controls on money and credit. An alternative identification strategy based on a narrative approach suggests that monetary policy shocks had strong and lasting effects in the conventional direction and accounted for nearly half of the variance in output and price levels. (JEL E43, E44, E52, E58, G21, G28, N14)