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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2004.10.012 Byline: William L. Silber Keywords: Federal Reserve; Gold standard; Financial crises; World War I Abstract: The outbreak of World War I shut the New York Stock Exchange for more than 4 months. The conventional explanation maintains that the closure prevented a collapse in stock prices that threatened a repetition of the Panic of 1907. This paper shows that the Wilson Administration encouraged the suspension of trading to pave the way for launching the Federal Reserve System, which was in the process of being born. Federal Reserve insiders considered an adequate stock of gold crucial to the success of the new monetary system. Closing the Exchange helped to forestall an outflow of gold. Central bankers can learn how crisis control is supposed to work from the 1914 experience. Author Affiliation: Stern School of Business, 44 West 4th Street, New York, NY 10012, USA Article History: Received 25 August 2004; Accepted 14 October 2004 Article Note: (footnote) [star] The author is the Marcus Nadler Professor of Finance and Economics, Stern School of Business, New York University. He wishes to thank Stephen Cecchetti, Yang Lu, Allan Meltzer, Anna Schwartz, Richard Sylla, Josh Sullivan, Paul Wachtel, Ingo Walter, an anonymous referee and the Editor of the JME, Charles Plosser, for helpful comments. Special thanks to Ken Garbade who treated this paper as though it were his own.

The eruption of World War 1 engendered a four-month abeyance of trading on the New York Stock Exchange. The way in which financial markets responded to this cessation of activities at the exchange, which is the longest suspension in the fiscal history of America, is discussed.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2005.02.005 Byline: William L. Silber Keywords: Liquidity; Financial innovation; Nyse; Circuit breaker; World war I Abstract: This paper examines how financial markets responded to the longest circuit breaker in American financial history: the four-month suspension of trading on the New York Stock Exchange following the outbreak of World War I. The suspension that began on July 31, 1914 fostered a substitute trading forum called the New Street market. Trading on New Street began almost immediately and offered economically meaningful liquidity services despite its impaired price transparency. A simple cross-sectional model of bid-ask spreads on New Street demonstrates that New Street liquidity responded to economic incentives. New Street's success implies that, from a public policy perspective, expensive back-up trading facilities are not required to preserve liquidity during a trading suspension in established markets. Back-up records of share ownership and transfer facilities, however, are crucial to maintaining liquidity. Author Affiliation: Stern School of Business, New York University, New York, NY 10012, USA Article History: Received 25 August 2004; Revised 29 October 2004; Accepted 23 February 2005 Article Note: (footnote) [star] I wish to thank Yakov Amihud, Amit Arora, Menachem Brenner, Kenneth Garbade, William Greene, Joel Hasbrouck, Jane Hsu, Yang Lu, Anthony Saunders, Gideon Saar, Mitchell Stephens, Richard Sylla, Paul Wachtel, Ingo Walter, Steven Wheeler and Robert Whitelaw for helpful comments and assistance. Special thanks to an anonymous referee and to the editor of the Journal of Financial Economics, Bill Schwert, for encouragement and detailed suggestions. An earlier version of this paper was presented at the National Bureau of Economic Research Universities Research Conference on Developing and Sustaining Financial markets, 1820-2000, December 2003.

This article seeks to examine the determining factors for market thinness. The data is taken from equities and bonds trading on the Tel Aviv, Israel Stock Exchange. Certain unique features of trading on that exchange, in particular the availability of information on excess demand and supply, cause it to be an ideal testing environment for the issue of thinness.

The article presents a response from William L. Silber and Murray E. Polakoff (S&P) to commentary by Jonas Prager and Jacob Paroush (P&P) about an article S&P wrote, "The Differential Effects of Tight Money," from the March, 1970 issue of the "Journal of Finance." S&P believe that P&P's analysis placed erroneous emphasis on the distinction between "differential" and "discriminatory" effects, thus ignoring S&P's intention to use the phrases synonymously within the context of their research. They also find fault with P&P's interpretation of some of their empirical work.