Working Paper: CEPR ID: DP13896
Authors: Eric Monnet
Abstract: Many influential cliometric studies have examined historical interest rates in order to assess investment efficiency, the integration of markets, the economic effects of changes in policies or institutions, the sources of macroeconomic cycles, and so on. The common feature of this approach to economic history is that it is based on the crucial assumption that interest rates are the market prices at which demand meets supply. In this perspective, most debates focus on how to calculate yields or compare different rates of return on capital. Cliometricians developed innovative methods to construct yields and lending rates that were not specified in historical sources. It is only quite recently that economic historians have turned to cases where interest rates are not market-clearing prices. In such cases, there is little connection between interest rates and the state of the economy. Highlighting market imperfections, some recent studies have challenged earlier historical interpretations that overlooked the potential disconnection between prices (interest rates) and quantities. They offer new insights into the historical functioning of credit markets, central banking and government intervention in financial systems.
Keywords: interest rates; yield; central bank; usury law; market clearing; rationing
JEL Codes: N1; N2; E4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Interest rates (E43) | economic conditions (E66) |
| Political events (D72) | interest rates (E43) |
| Institutions (D02) | financial markets (G10) |
| Government regulations (L51) | interest rates (E43) |
| Usury laws (K35) | interest rates (E43) |
| 1688 revolution in England (N13) | interest rates (E43) |
| Interest rates (E43) | borrowing costs (H74) |
| Interest rates (E43) | market scarcity assessment (D49) |