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Is the Law of Reflux Valid?

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Author Info

  • Hortlund, Per

    ()
    (Dept. of Economics, Stockholm School of Economics)

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    Abstract

    In the classical monetary debates, the Banking School held that notes would be equally demand-elastic whether supplied by many or a single issuer. The Free Banking School held that notes would be less demand-elastic if supplied by a single issuer. These assertions have rarely, if ever, been subject to more stringent statistical testing. In this paper I compare the elastic properties of the note stock of the Swedish note banking system in 1880–1895 with those of the regime in 1904–1913, when the Bank of Sweden held a note monopoly. Evidence suggests that notes did not become less elastic after monopolisation, thus lending support to the views of the Banking School.

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    File URL: http://swopec.hhs.se/hastef/papers/hastef0599.pdf
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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 599.

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    Length: 24 pages
    Date of creation: 15 Jun 2005
    Date of revision:
    Handle: RePEc:hhs:hastef:0599

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    Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
    Phone: +46-(0)8-736 90 00
    Fax: +46-(0)8-31 01 57
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    Related research

    Keywords: Banking School; Free Banking School; Elastic currency; Clearing mechanism; Needs of trade; Law of Reflux; Real bills doctrine;

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    Cited by:
    1. 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.

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