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The paradox of interest rates of the Greenback Era: A reexamination


  • Zhylyevskyy, Oleksandr


The two leading explanations for the counterintuitive behavior of interest rates during the Greenback Era (1862-1878) - the resumption expectations model of Calomiris (1988) and the capital flow argument of Friedman and Schwartz (1963) - 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.

Suggested Citation

  • Zhylyevskyy, Oleksandr, 2010. "The paradox of interest rates of the Greenback Era: A reexamination," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1026-1037, November.
  • Handle: RePEc:eee:moneco:v:57:y:2010:i:8:p:1026-1037

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    References listed on IDEAS

    1. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-262, April.
    2. Field, Alexander James, 1983. "Land Abundance, Interest/Profit Rates, and Nineteenth-Century American and British Technology," The Journal of Economic History, Cambridge University Press, vol. 43(02), pages 405-431, June.
    3. Roll, Richard, 1972. "Interest Rates and Price Expectations During the Civil War," The Journal of Economic History, Cambridge University Press, vol. 32(02), pages 476-498, June.
    4. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
    5. Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
    6. Calomiris, Charles W, 1994. "Price and Exchange Rate Determination during the Greenback Suspension," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 344-344, April.
    7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    8. Michie, Ranald C., 1986. "The London and New York Stock Exchanges, 1850–1914," The Journal of Economic History, Cambridge University Press, vol. 46(01), pages 171-187, March.
    9. Davis, George K. & Pecquet, Gary M., 1990. "Interest Rates in the Civil War South," The Journal of Economic History, Cambridge University Press, vol. 50(01), pages 133-148, March.
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    JEL classification:

    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913


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