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Money dynamics with multiple banks of issue: evidence from Spain 1856-1874

  • Galo Nuño

    ()

    (Banco de España)

  • Pedro Tedde

    ()

    (Banco de España)

  • Alessio Moro

    ()

    (Università di Cagliari)

This paper analyzes the Spanish monetary system from 1856, when the Bank of Spain was created, to 1874, when it was awarded the monopoly of emission. This period was characterized by the emergence of an unregulated banking system, with multiple banks of issue entitled to emit bank notes. We focus on two main issues: i) the large fluctuations in the money supply during this period; and ii) the lack of a lender of last resort in the banking panic of 1866. To analyze this, we construct a new dataset on money supply aggregates. The paper also estimates the economic impact of monetary fluctuations with the help of a calibrated new Keynesian model. Our results suggest that money supply shocks had a milder effect on inflation and output than the one predicted by the theory.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/11/Fich/dt1119e.pdf
File Function: First version, September 2011
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1119.

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Length: 42 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:bde:wpaper:1119
Contact details of provider: Web page: http://www.bde.es/
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  1. Timothy J. Kehoe & Edward C. Prescott (), 2007. "Great depressions of the twentieth century," Monograph, Federal Reserve Bank of Minneapolis, number 2007gdott.
  2. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  3. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  4. Michael D. Bordo & Christopher J. Erceg & Charles L. Evans, 1997. "Money, Sticky Wages, and the Great Depression," NBER Working Papers 6071, National Bureau of Economic Research, Inc.
  5. Marc Flandreau, Stefano Ugolini, 2011. "Where It All Began: Lending of Last Resort and the Bank of England during the Overend, Gurney Panic of 1866," IHEID Working Papers 04-2011, Economics Section, The Graduate Institute of International Studies.
  6. Jordi Galí, 2008. "Introduction to Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework
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    ," Introductory Chapters, Princeton University Press.
  7. Jordi Gal� & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  8. Timothy Kehoe & Edward Prescott, 2002. "Data Appendix to Great Depressions of the Twentieth Century," Technical Appendices kehoe02, Review of Economic Dynamics.
  9. Bordo, Michael D & Choudhri, Ehsan U & Schwartz, Anna J, 1995. "Could Stable Money Have Averted the Great Contraction?," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 484-505, July.
  10. Prados de la Escosura Leandro, 2003. "El progreso económico de España (1850-2000)," Books, Fundacion BBVA / BBVA Foundation, edition 1, number 201136.
  11. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24.
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