The pitfalls of estimating transactions costs from price data: evidence from trans-Atlantic gold-point arbitrage, 1886-1905
AbstractThis paper argues that bilateral spatial price models do not estimate bilateral transactions costs when trade with third cities is important. The paper examines trans-Atlantic gold arbitrage during the gold standard era by assembling a database indicating when trans-Atlantic gold shipments occurred. It shows that two-way gold shipments between New York and London frequently occurred prior to 1901. However, in 1901 gold shipments to London ceased and were replaced by triangular arbitrage shipments through Paris. Consequently, New York and London gold price data cannot be used to estimate New York-London transactions costs after 1901, as no trade took place.
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Bibliographic InfoPaper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2007/07.
Length: 40 p.
Date of creation: Apr 2007
Date of revision:
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-GEO-2007-03-31 (Economic Geography)
- NEP-URE-2007-03-31 (Urban & Real Estate Economics)
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