The Paradox of Interest Rates of the Greenback Era: A Reexamination
AbstractThe two leading explanations for the counterintuitive behavior of interest rates during the Greenback Era (1862â€“1878) â€“ the resumption expectations model of Calomiris (1988) and the capital flow argument of Friedman and Schwartz (1963) â€“ are inconsistent with each other in terms of their treatment of financial arbitrage. A methodology to identify unexploited arbitrage opportunities in financial data is proposed. Observable returns strongly suggest that the money market of the Greenback Era did not systematically admit arbitrage, except possibly around the times of the Gold Corner of 1869 and the Panic of 1873, which implies that Calomiris provides a more plausible explanation.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32050.
Date of creation: 12 Oct 2010
Date of revision:
Publication status: Published in Journal of Monetary Economics, November 2010, vol. 57 no. 8, pp. 1026-1037
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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Greenback Era; money market; arbitrage opportunity; interest rate paradox;
Find related papers by JEL classification:
- N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
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