NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Measuring Market Integration: A Model of Arbitrage with an Econometric Application to the Gold Standard, 1879-1913

Gauri Prakash, Alan M. Taylor

NBER Working Paper No. 6073
Issued in June 1997
NBER Program(s):Development of the American Economy

A major question in the literature on the classical gold standard concerns the efficiency of international arbitrage. Most authors have examined efficiency by looking at the spread of the gold points, gold-point violations, the flow of gold in profitable or unprofitable directions, 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 a theoretical model of arbitrage applicable to any type of market. The model is econometrically tractable using the techniques of threshold autoregressions. We study the efficiency of the dollar-sterling gold standard in this framework, and we radically improve the empirical basis for investigation by compiling a new, high-frequency series of continuous daily data from 1879 to 1913. Using data at this frequency we can derive reasonable econometric estimates of the size of transaction-cost bands (as compared with direct cost estimates). We can also estimate the speed of adjustment through which disequilibria (gold-point violations) were corrected. The changes in these measures over time provides an insight into the evolution of market integration in the classical gold standard.

download in pdf format
   (379 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6073

Published: Eugene Canjels & Gauri Prakash-Canjels & Alan M. Taylor, 2004. "Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard, 1879-1913," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 868-882, 05.

Users who downloaded this paper also downloaded* these:
Anderson, Larch, and Yotov w23757 Trade and Investment in the Global Economy
Groshen and Schweitzer w6061 Identifying Inflation's Grease and Sand Effects in the Labor Market
Obstfeld and Taylor w6053 Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited
Cantoni, Dittmar, and Yuchtman w23934 Religious Competition and Reallocation: The Political Economy of Secularization in the Protestant Reformation
Cooper and Zhu w23741 Household Finance in China
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us