Working Paper: NBER ID: w10583
Authors: Eugene Canjels; Gauri Prakashcanjels; 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: market integration; foreign exchange; gold standard
JEL Codes: N1; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| deviations from the gold points (F33) | arbitrage opportunities (F31) |
| arbitrage opportunities (F31) | exchange rate dynamics (F31) |
| deviations from the gold points (F33) | exchange rate dynamics (F31) |
| exchange rate diverges from parity (F31) | arbitrageurs engage in transactions (G19) |
| arbitrageurs engage in transactions (G19) | exchange rate adjusts back towards gold points (F31) |