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In-Concert Overexpansion and the Precautionary Demand for Bank Reserves

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  • Selgin, George

Abstract

Economists have long believed that, absent any public withdrawals of high-powered money, an unregulated, closed banking system can expand its assets and liabilities without encountering any shortage of reserves so long as its members act in concert. Notwithstanding its popularity, this "inconcert overexpansion" doctrine is inconsistent with standard theories of the precautionary demand for bank reserves. Unless these theories are themselves incorrect, concerns that complete removal of legal restrictions on the competitive supply of bank money must result in an unstable or indeterminate bank-money multiplier are misplaced.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 33 (2001)
Issue (Month): 2 (May)
Pages: 294-300

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Handle: RePEc:mcb:jmoncb:v:33:y:2001:i:2:p:294-300

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Antoine Gentier & Giuseppina Gianfreda & Nathalie Janson, 2011. "Rent Dissipation or Government Predation? The Notes Issuance Activity in Italy 1865-1882," CAE Working Papers 88, Aix-Marseille Université, CERGAM.
  2. Hortlund, Per, 2005. "Clearing vs. Leakage: Does Note monopoly Increase Money and Credit Cycles?," Working Paper Series in Economics and Finance 600, Stockholm School of Economics.
  3. Hortlund, Per, 2005. "Clearing vs. Leakage: Does Note Monopoly Increase Money and Credit Cycles?," Ratio Working Papers 67, The Ratio Institute.
  4. Antoine Gentier & Giuseppina Gianfreda & Nathalie Janson, 2006. "The Question of the Rent Dissipation in the Notes Issuance Activity: The Case of the Italian Banking System before the Creation of the Bank of Italy," CAE Working Papers 45, Aix-Marseille Université, CERGAM.
  5. Hugh Rockoff, 2010. "Parallel Journeys: Adam Smith and Milton Friedman on the Regulation of Banking," Departmental Working Papers 201004, Rutgers University, Department of Economics.
  6. Ogren, Anders, 2006. "Free or central banking? Liquidity and financial deepening in Sweden, 1834-1913," Explorations in Economic History, Elsevier, vol. 43(1), pages 64-93, January.
  7. Young, Andrew T. & Dove, John A., 2013. "Policing the chain gang: Panel cointegration analysis of the stability of the Suffolk System, 1825–1858," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 182-196.
  8. Hugh Rockoff, 2009. "Upon Daedalian Wings of Paper Money: Adam Smith and the Crisis of 1772," NBER Working Papers 15594, National Bureau of Economic Research, Inc.
  9. George Selgin, 2012. "Mere quibbles: Bagus and Howden’s critique of the theory of free banking," The Review of Austrian Economics, Springer, vol. 25(2), pages 131-148, June.

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