Working Paper: NBER ID: w10924
Authors: 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.
Keywords: Monetary Policy; Regional Interest Rates; Financial Integration; US Monetary Union
JEL Codes: N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shocks to interest rates in the eastern centers (E43) | rates in the periphery (E49) |
| significant shocks to bank lending rates (G21) | regional rates (R10) |
| operations in eastern financial centers (G15) | management of the US monetary union (F45) |
| integration of financial markets (F30) | transmission of monetary shocks (E39) |
| independent shocks in the periphery (E32) | transmission of monetary policy (E52) |