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Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard, 1879-1913

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  • Eugene Canjels
  • Gauri Prakash-Canjels
  • Alan M. Taylor

Abstract

A major question in the literature on the classical gold standard concerns the efficiency of international arbitrage. Authors have examined efficiency by looking at the spread of the gold points, gold point violations, the flow of gold, or by tests of various asset market criteria, including speculative efficiency and interest arbitrage. These studies have suffered from many limitations, both methodological and empirical. We offer a new methodology for measuring market integration based on nonlinear theoretical models and threshold autoregressions. We also compile a new, high-frequency series of continuous daily data from 1879 to 1913. We can derive reasonable econometric estimates of the implied gold points and price dynamics. The changes in these measures over time provide an insight into the evolution of market integration.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10583.

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Date of creation: Jun 2004
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Publication status: published as Eugene Canjels & Gauri Prakash-Canjels & Alan M. Taylor, 2004. "Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard, 1879-1913," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 868-882, 05.
Handle: RePEc:nbr:nberwo:10583

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  1. Kapetanios, G., 1999. "Model Selection in Threshold Models," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9906, Faculty of Economics, University of Cambridge.
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Cited by:
  1. David Chilosi & Oliver Volckart, 2009. "Money, states and empire: financial integration cycles and institutional change in Central Europe, 1400-1520," Economic History Working Papers, London School of Economics and Political Science, Department of Economic History 27884, London School of Economics and Political Science, Department of Economic History.
  2. Menkhoff, Lukas & Rebitzky, Rafael, 2007. "Investor sentiment in the US-dollar: longer-term, nonlinear orientation on PPP," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-376, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. Morys, Matthias, 2013. "Discount rate policy under the Classical Gold Standard: Core versus periphery (1870s–1914)," Explorations in Economic History, Elsevier, Elsevier, vol. 50(2), pages 205-226.
  4. Bruce Blonigen & Anca Cristea, 2013. "The Effects of the Interstate Commerce Act on Transport Costs: Evidence from Wheat Prices," Review of Industrial Organization, Springer, Springer, vol. 43(1), pages 41-62, August.
  5. Jacks, David S., 2006. "What drove 19th century commodity market integration?," Explorations in Economic History, Elsevier, Elsevier, vol. 43(3), pages 383-412, July.
  6. Boerner, Lars & Volckart, Oliver, 2011. "The utility of a common coinage: Currency unions and the integration of money markets in late Medieval Central Europe," Explorations in Economic History, Elsevier, Elsevier, vol. 48(1), pages 53-65, January.
  7. Malliaris, A.G. & Malliaris, Mary, 2011. "Are oil, gold and the euro inter-related? time series and neural network analysis," MPRA Paper, University Library of Munich, Germany 35266, University Library of Munich, Germany.
  8. Volckart, Oliver & Wolf, Nikolaus, 2004. "Estimating medieval market integration: Evidence from exchange rates," Discussion Papers, Free University Berlin, School of Business & Economics 2004/21, Free University Berlin, School of Business & Economics.

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