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Is the Law of Reflux Valid?

  • Hortlund, Per


    (Dept. of Economics, Stockholm School of Economics)

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    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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    Paper provided by Stockholm School of Economics in its series SSE/EFI 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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