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

  • Eugene Canjels

    (Deloitte & Touche LLP)

  • Gauri Prakash-Canjels

    (Howrey and Simon)

  • Alan M. Taylor

    (University of California, Davis, NBER, and CEPR)

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, or 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. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 86 (2004)
Issue (Month): 4 (November)
Pages: 868-882

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Handle: RePEc:tpr:restat:v:86:y:2004:i:4:p:868-882
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  1. Kapetanios, G., 1999. "Model Selection in Threshold Models," Cambridge Working Papers in Economics 9906, Faculty of Economics, University of Cambridge.
  2. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
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  7. Officer, Lawrence H., 1983. "Dollar-Sterling Mint Parity and Exchange Rates, 1791–1834," The Journal of Economic History, Cambridge University Press, vol. 43(03), pages 579-616, September.
  8. Obstfeld,Maurice & Taylor,Alan M., 2004. "Global Capital Markets," Cambridge Books, Cambridge University Press, number 9780521633178.
  9. Barry Eichengreen, 1990. "Trends and Cycles in Foreign Lending," NBER Working Papers 3411, National Bureau of Economic Research, Inc.
  10. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
  11. Oskar Morgenstern, 1959. "International Financial Transactions and Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number morg59-1, October.
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