SSE/EFI Working Paper Series in Economics and Finance
Reserves, Money Supply and Prices: The International Adjustment Mechanism in Sweden under the Silver and Gold Standards, 1834 – 1913
Abstract: This paper explores how international capital movements
affected the domestic money supply. This requires that the causality at
work in the adjustment process be analyzed. For this purpose, series of
central bank reserves, the monetary base, the money supply and the balance
of payments were constructed. The methodological problems encountered in
estimating such monetary measures in a transitional economy where much of
the circulating money consists of private banks notes, and which is
dependent on foreign loans, is discussed. The relationship between central
bank (Riksbank) reserves and international capital flows is then studied.
The overall growth of the money supply, while not accompanied by a growth
in reserves, is found to correspond to such growth in other countries
operating under a specie standard. This growth also was related to the
growth of the real economy. Qualitative evidence aside, statistical results
indicate a relationship among reserves, the money supply and prices that is
consistent with the price specie flow mechanism. Changes in reserves were
positively related to the money supply and changes in the money supply had
a lagged positive effect on changes in the level of consumer prices.
Keywords: Balance of Payments; Central Bank Reserves; Classical Silver and Gold Standards; Monetary Base; Money Supply; Prices; (follow links to similar papers)
JEL-Codes: E31; E51; N13; N23; (follow links to similar papers)
49 pages, November 5, 2003
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