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Greenback-Gold Returns and Expectations of Resumption, 1862-1879

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  • Smith, Gregor W.
  • Smith, R. Todd

Abstract

We propose a unified framework for studying the greenback-gold price during the U.S. suspension of convertibility from 1862 to 1879. The gold price is viewed as a floating exchange rate, with a fixed destination given by gold standard parity because of the prospect of resumption. We test this perspective using daily data for the entire period, and measure the effect of news during and after the Civil War. New evidence of a decline in the volatility of gold returns after the Resumption Act of 1875 provides statistical support for the importance of expectations of resumption.

Suggested Citation

  • Smith, Gregor W. & Smith, R. Todd, 1996. "Greenback-Gold Returns and Expectations of Resumption, 1862-1879," Queen's Economics Department Working Papers 273754, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273754
    DOI: 10.22004/ag.econ.273754
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    References listed on IDEAS

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    1. Wimmer, Larry T., 1975. "The gold crisis of 1869: Stabilizing or destabilizing speculation under floating exchange rates?," Explorations in Economic History, Elsevier, vol. 12(2), pages 105-122, April.
    2. Smith, Gregor W., 1995. "Exchange-rate discounting," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 659-666, October.
    3. Burdekin Richard C. K. & Langdana Farrokh K., 1993. "War Finance in the Southern Confederacy, 1861-1865," Explorations in Economic History, Elsevier, vol. 30(3), pages 352-376, July.
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    5. Roll, Richard, 1972. "Interest Rates and Price Expectations During the Civil War," The Journal of Economic History, Cambridge University Press, vol. 32(2), pages 476-498, June.
    6. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, vol. 8(4), pages 323-361, December.
    7. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    8. Willard, Kristen L & Guinnane, Timothy W & Rosen, Harvey S, 1996. "Turning Points in the Civil War: Views from the Greenback Market," American Economic Review, American Economic Association, vol. 86(4), pages 1001-1018, September.
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    2. Jean-Sébastien Pentecôte & Marc-Alexandre Sénégas, 2003. "Comment fixer les cours de change?. Annonces et correspondances maastrichtiennes," Recherches économiques de Louvain, De Boeck Université, vol. 69(1), pages 39-71.
    3. Pecquet, Gary M. & Thies, Clifford F., 2007. "Texas treasury notes and market manipulation, 1837-1842," Explorations in Economic History, Elsevier, vol. 44(1), pages 81-99, January.
    4. Meulemann, Max & Uebele, Martin & Wilfling, Bernd, 2014. "The restoration of the gold standard after the US Civil War: A volatility analysis," Journal of Financial Stability, Elsevier, vol. 12(C), pages 37-46.
    5. Smith, Gregor W., 1995. "Exchange-rate discounting," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 659-666, October.
    6. Maurice Obstfeld & Alan M. Taylor, 2003. "Sovereign risk, credibility and the gold standard: 1870-1913 versus 1925-31," Economic Journal, Royal Economic Society, vol. 113(487), pages 241-275, April.
    7. William A. Bomberger & Gail E. Makinen, 2010. "Seigniorage, Legal Tender, And The Demand Notes Of 1861," Economic Inquiry, Western Economic Association International, vol. 48(4), pages 916-932, October.
    8. Marc D. Weidenmier, 2002. "Turning Points in the U.S. Civil War: Views from the Grayback Market," Southern Economic Journal, John Wiley & Sons, vol. 68(4), pages 875-890, April.

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    JEL classification:

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

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