How Sovereign Debt Accelerated the First Industrial Revolution

Could the massive wartime debt accumulated by Britain’s government in the 18th and 19th centuries have helped the country industrialize first and become the world’s leading economy? Given the customary association of debt with dissipation and ruin, this may come across as an unlikely proposition, yet this is exactly the story that Jaume Ventura and Hans-Joachim Voth have found in the historical evidence.

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Managing credit bubbles

Barcelona GSE research on by Alberto Martín and Jaume Ventura

There is a widespread view among macroeconomists that fluctuations in collateral are an important driver of credit booms and busts. This column distinguishes between ‘fundamental’ collateral – backed by expectations of future profits – and ‘bubbly’ collateral – backed by expectations of future credit. Markets are generically unable to provide the optimal amount of bubbly collateral, which creates a natural role for stabilisation policies. A lender of last resort with the ability to tax and subsidise credit can design a ‘leaning against the wind’ policy that replicates the ‘optimal’ bubble allocation.

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