Was the Bank of England responsible for inflation during the Napoleonic wars (1897-1815)? Some preliminary evidence from old data and new econometric techniques

Inflation during the Napoleonic wars is a widely investigated and interesting case study; it generated a fantastic contemporary theoretical debate, which per se is a stimulating subject, ad provides a revealing perspective on more generic topics such as the gold standard, the Bank of England behaviour and the level of price. The bullionist position had a short-living initial victory, but since Tookes study, the anti-bullionist perspective dominated the scene and remained relatively unchallenged. Although still provisional, our findings are in contrast with the outcome of the two centuries-long debate and provide a possible solution to this puzzle. Granger tests show very little about the causal relation between paper issue of the Bank of England and price levels and no definitive answer can be inferred by these measurements. The structure of monetary payments of the time, however, suggests that the use of the Bank of England issue could be a poor and misleading proxy of the amount of monetary means. Problems with the estimations of both gold coins and country bank issue do not allow providing a better proxy. The solution we found is to use, instead, the level of advances and discounts. This variable shows a higher level of long-term correlation with prices as well as better results when used to run Granger test with price changes. Granger causality from price to currency does not emerge, but the opposite relation stands, at least with broader interval of confidence.