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

  • Eugene Canjels
  • Gauri Prakash-Canjels
  • Alan M. Taylor

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, 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10583.

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Date of creation: Jun 2004
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Publication status: published as Eugene Canjels & Gauri Prakash-Canjels & Alan M. Taylor, 2004. "Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard, 1879-1913," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 868-882, 05.
Handle: RePEc:nbr:nberwo:10583
Note: DAE IFM
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  1. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
  2. Hansen,B.E., 1999. "Testing for linearity," Working papers 7, Wisconsin Madison - Social Systems.
  3. Eichengreen, Barry, 1990. "Trends and Cycles in Foreign Lending," CEPR Discussion Papers 451, C.E.P.R. Discussion Papers.
  4. Kapetanios, G., 1999. "Model Selection in Threshold Models," Cambridge Working Papers in Economics 9906, Faculty of Economics, University of Cambridge.
  5. Jushan Bai, 1995. "Estimating Multiple Breaks One at a Time," Working papers 95-18, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. 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.
  7. Potter, Simon M, 1999. " Nonlinear Time Series Modelling: An Introduction," Journal of Economic Surveys, Wiley Blackwell, vol. 13(5), pages 505-28, December.
  8. repec:cup:cbooks:9780521633178 is not listed on IDEAS
  9. 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.
  10. repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS
  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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