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Title:Clearing vs. leakage: Does note monopoly increase money and credit cycles? PDF Logo
Authors:Hortlund, Per
Issue Date:2005
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 600
Abstract:The effects of note monopolisation on the amplitude of money and credit cycles are studied. Swedish bank data for 1871-1915 reveal that money cycles became smaller, but credit cycles larger, after the Bank of Sweden gained a note monopoly in 1904. At the same time, the money multiplier decreased, while the credit multiplier increased. If the central bank's reserve ratio is larger than that of the commercial banks, and if the currency-deposit ratio is sufficiently large, the leakage effect could dominate the loss-of-clearing effect (base expansion), such that the money multiplier decreases. That the credit multiplier simultaneously increased is attributed mainly to an increasing time-demand deposit ratio, which increased the credit capacity of the banking system.
Subjects:Clearing mechanism
Credit expansion
Currency-deposit ratio
Fiduciary money
Free banking
Leakage
Money multiplier
JEL:E32
E42
E51
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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