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Capital Markets and Grain Prices: Assessing the Storage Cost Approach

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  • Keller, Wolfgang
  • ,
  • Wang, Xin

Abstract

This paper evaluates a well-known approach from the economic history literature that uses grain prices to shed light on interest rates. Although this method has been applied in influential work starting with McCloskey and Nash (1984) and has potentially wide applicability in situations where interest rates are not available, this paper provides the first analysis of how well the storage cost approach captures actual capital market performance on a number of different dimensions. Using matched data on bank interest rates and grain prices for early 19th century U.S. regions, we find that the storage cost approach is useful for quantifying the performance of capital markets. The storage cost approach captures well regional differences in market performance, also in comparison to interest rate figures derived from the prices of bills of exchange. The paper also assesses the storage cost approach’s robustness to measurement error, incomplete information, outliers, and other factors.

Suggested Citation

  • Keller, Wolfgang & , & Wang, Xin, 2018. "Capital Markets and Grain Prices: Assessing the Storage Cost Approach," CEPR Discussion Papers 12778, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12778
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    1. Wolfgang Keller & Carol H. Shiue & Xin Wang, 2020. "Capital markets and grain prices: assessing the storage cost approach," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 14(2), pages 367-396, May.
    2. Harrison, James M., 2023. "Exploring 200 years of U.S. commodity market integration: A structural time series model approach," Explorations in Economic History, Elsevier, vol. 88(C).

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    More about this item

    Keywords

    Capital market integration; Interest rates; Asset pricing; Grain storage;
    All these keywords.

    JEL classification:

    • N01 - Economic History - - General - - - Development of the Discipline: Historiographical; Sources and Methods
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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