An Empirical Assessment of the Swedish Bullionist Controversy

In the eighteenth century, a fierce political debate broke out in Sweden about the causes of an extraordinary depreciation of its currency. More specifically, the dete- riorating value of the Swedish daler was discretionarily blamed on monetary causes, e.g. the overissuing of banknotes, or nonmonetary causes, such as balance of payments deficits. This paper provides a comprehensive empirical assessment of this so-called "Swedish Bullionist Controversy". The results of vector autoregressions suggest that increasing amounts of paper money did give rise to in ation and a depreciation of the exchange rate. Conversely, nonmonetary factors were probably less important for these developments.