Currency Elasticity and Banking Panics: Theory and Evidence

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Currency Elasticity and Banking Panics: Theory and Evidence

Author Info

Bruce Champ
Bruce D. Smith
Stephen D. Williamson

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Abstract

Existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not. A monetary model is constructed, where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics. These panics occur when there are restrictions on the issue of currency in private banks, but they do not occur if banks are unrestricted. Empirical evidence from Canada and the United States for the period 1880-1910 is largely consistent with the predictions of the model.

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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 29 (1996)
Issue (Month): 4 (November)
Pages: 828-64
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Handle: RePEc:cje:issued:v:29:y:1996:i:4:p:828-64

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Paper
- Champ, B. & Smith, B.D., 1991. "Currency Elasticity and Banking Panics: theory and Evidence," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
- Champ, B. & Snith, B.D. & Williamson, D.S., 1991. "Currency Elasticity and Banking Panics: Theory and Evidence," RCER Working Papers 292, University of Rochester - Center for Economic Research (RCER).

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