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Monetary Policy and Regional Interest Rates in the United States, 1880-2002

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  • John Landon-Lane
  • Hugh Rockoff

Abstract

The long running debate among economic historians over how long it took regional financial markets in the United States to become fully integrated should be of considerable interest to students of monetary unions. This paper reviews the debate, discusses the implications of various hypotheses for the optimality of the US monetary union, and presents some new findings on the origin and diffusion of monetary shocks. It appears that financial markets were integrated in the late nineteenth and early twentieth centuries in the sense that monetary shocks were routinely transmitted from one part of the United States to another. In particular, shocks to interest rates in the eastern financial centers were routinely transmitted to the periphery. However, it also appears that during this period significant shocks to bank lending rates in the periphery often arose on the periphery itself. This suggests that a nineteenth century monetary authority that relied on operations confined to eastern financial centers would have had a difficult time managing the U.S. monetary union. After World War II the problem of eruptions on the periphery declined.

Suggested Citation

  • John Landon-Lane & Hugh Rockoff, 2004. "Monetary Policy and Regional Interest Rates in the United States, 1880-2002," NBER Working Papers 10924, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10924
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    References listed on IDEAS

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    1. Driscoll, John C., 2004. "Does bank lending affect output? Evidence from the U.S. states," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 451-471, April.
    2. Olmstead, Alan L., 1974. "Davis vs. Bigelow Revisited: Antebellum American Interest Rates," The Journal of Economic History, Cambridge University Press, vol. 34(02), pages 483-491, June.
    3. Howard Bodenhorn & Hugh Rockoff, 1992. "Regional Interest Rates in Antebellum America," NBER Chapters,in: Strategic Factors in Nineteenth Century American Economic History: A Volume to Honor Robert W. Fogel, pages 159-187 National Bureau of Economic Research, Inc.
    4. Smiley, Gene, 1981. "Regional Variation in Bank Loan Rates in the Interwar Years," The Journal of Economic History, Cambridge University Press, vol. 41(04), pages 889-901, December.
    5. Eichengreen, Barry, 1984. "Mortgage Interest Rates in the Populist Era," American Economic Review, American Economic Association, vol. 74(5), pages 995-1015, December.
    6. Snowden, Kenneth A., 1987. "Mortgage Rates and American Capital Market Development in the Late Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 47(03), pages 671-691, September.
    7. George J. Stigler, 1967. "Imperfections in the Capital Market," Journal of Political Economy, University of Chicago Press, vol. 75, pages 287-287.
    8. Bodenhorn, Howard, 1992. "Capital Mobility and Financial Integration in Antebellum America," The Journal of Economic History, Cambridge University Press, vol. 52(03), pages 585-610, September.
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    More about this item

    JEL classification:

    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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