Working Paper: CEPR ID: DP13920
Authors: Nathan Sussman
Abstract: A novel, annual series of interest rates paid by the Corporation of London extracted from archival sources shows that interest rates in London declined by 350 basis points over the 17th century. Most of the decline followed a similar pattern in Amsterdam. Records extracted from the Corporation's archive provide evidence for financial deepening: an increase in the number and volume of debt instruments, an increase in the number of people holding them, and development of a secondary market. Econometric analysis establishes that financial deepening contributed to the convergence of interest rates between London and Amsterdam. England's financial evolution and path towards modern growth date, therefore, to the 17th century.
Keywords: interest rate; financial development; financial intermediation; growth; England
JEL Codes: N2; N23; O16; O43; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial deepening (O16) | convergence of interest rates (E43) |
| financial deepening (O16) | liquidity premium decrease (E41) |
| liquidity premium decrease (E41) | lower interest rates (E43) |
| financial activities of the Corporation of London (G39) | decline in interest rates (E43) |
| Restoration in 1660 (N13) | financial deepening (O16) |
| financial deepening (O16) | increased GDP per capita (O49) |
| decline in borrowing rates (E43) | correlation with Amsterdam rates (C59) |
| debt-to-GDP ratio (H68) | decline in borrowing rates (E43) |