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Capital Markets and Grain Prices: Assessing the Storage Cost Approach

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  • KELLER, Wolfgang
  • SHIUE, Carol H.
  • WANG, Xin

Abstract

This paper evaluates an approach to shed light on capital markets using grain prices, since stored grain incurs interest costs as part of the storage costs. Though this storage cost approach has been applied in McCloskey and Nash (1984) and has potentially wide applicability in situations where interest rate data is not available, this paper provides the first analysis of how well the storage cost approach captures actual capital market developments. 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. While the estimation of region- and year-specific interest rates can be challenging, the approach grain price approach accurately reflects differences in capital market development. Furthermore, the approach is robust to employing time series filtering techniques as well as dealing with unavailable information on harvest times, outliers, and a range of other factors.

Suggested Citation

  • KELLER, Wolfgang & SHIUE, Carol H. & WANG, Xin, 2018. "Capital Markets and Grain Prices: Assessing the Storage Cost Approach," Discussion paper series HIAS-E-74, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
  • Handle: RePEc:hit:hiasdp:hias-e-74
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    Cited by:

    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.

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    More about this item

    Keywords

    Capital market integration; Financial economic development; U.S. economic history;
    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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