Working Paper: NBER ID: w24388
Authors: Wolfgang Keller; Carol H. Shiue; Xin Wang
Abstract: This paper evaluates a well-known approach from the economic history literature that uses grain prices to shed light on interest rates. Although this method has been applied in influential work starting with McCloskey and Nash (1984) and has potentially wide applicability in situations where interest rates are not available, this paper provides the first analysis of how well the storage cost approach captures actual capital market performance on a number of different dimensions. Using matched data on bank interest rates and grain prices for early 19th century U.S. regions, we find that the storage cost approach is useful for quantifying the performance of capital markets. The storage cost approach captures well regional differences in market performance, also in comparison to interest rate figures derived from the prices of bills of exchange. The paper also assesses the storage cost approach’s robustness to measurement error, incomplete information, outliers, and other factors.
Keywords: capital markets; grain prices; storage cost approach; interest rates
JEL Codes: G12; G21; N2; N61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| grain prices (Q11) | capital market performance (G10) |
| storage cost approach (G31) | capital market performance (G10) |
| storage cost approach (G31) | interest rates (E43) |
| grain prices (Q11) | interest rates (E43) |
| interest rates (E43) | capital market performance (G10) |