Working Paper: CEPR ID: DP4492
Authors: Eugene Canjels; Gauri Prakash Canjels; Alan M. Taylor
Abstract: 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.
Keywords: Dollar; Gold Points; Market Integration; Sterling
JEL Codes: F30; N10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficiency of international arbitrage (G15) | stable exchange rates (F31) |
| deviations from the gold points (F33) | arbitrage activities (G19) |
| gold point arbitrage (G13) | market stability (D53) |
| large deviations (C46) | gold flows (E50) |
| gold flows (E50) | return exchange rate within gold points (F31) |
| arbitrage behavior (G40) | market efficiency (G14) |
| new methodology (C80) | understanding of arbitrage dynamics (C69) |
| high-frequency data and nonlinear models (C22) | better understanding of market integration (F15) |