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Money demand under free banking: Switzerland 1851-1906
Stefan Gerlach1,2, Peter Kugler3
1BSI Bank, Schützengasse 31, 8021 Zürich, Switzerland.
Abstract:
This paper studies money demand in Switzerland under free banking before the establishment of the Swiss National Bank. We find that, in addition to income, the banks' balance-sheet-to-GDP ratio and the number of banks were important determinants of long-run money demand. The former variable also played an important role in the monetary adjustment process. We also detect a strong positive long-run impact of real income on the bank's balance-sheet-total-to-GDP ratio and a strong long-run influence of real income and the interest rate spread on the number of banks.
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