Research Discussion Paper – April 1993
The 1893 Bank Crashes and Monetary Aggregates
David T. Merrett
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The paper explores the effects of the reconstruction schemes of the twelve banks of issue which suspended payment in early 1893 on the behaviour of monetary aggregates. Earlier estimates of narrow and broad measures of money seriously underestimate the contraction in the money stock by not netting out all of the significant proportion of deposit liabilities whose terms of maturity are so lengthened that they are effectively debentures. The paper proceeds by discussing the treatment of this matter in earlier calculations of the money stock. It then constructs an amended series that adjusts for the 'locked up' deposit liabilities and interminable deposit stock. Finally, a further adjustment is made by calculating the market value of the deferred deposit receipts and adding that back into the money supply. Thus a lower and upper bound of an alternative series of Australian monetary aggregates is provided.