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, highfrequency 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.

Conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity, especially international trade. We study the effects of war on bilateral trade with available data extending back to 1870. Using the gravity model, we estimate the contemporaneous and lagged effects of wars on the trade of belligerent nations and neutrals, controlling for other determinants of trade, as well as the possible effects of reverse causality. We find large and persistent impacts of wars on trade, national income, and global economic welfare. We also conduct a general equilibrium comparative statics exercise that indicates costs associated with lost trade might be at least as large as the conventionally measured direct costs of war, such as lost human capital, as illustrated by case studies of World Wars I and II.

Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this article, we fill this gap by analysing long-run historical data. We find that when the stance of monetary policy is accommodative over an extended period, the likelihood of financial turmoil in the medium term increases considerably. We investigate the causal pathways that lead to this result and argue that credit creation and asset price overheating are important intermediating channels.

Debt overhang is associated with higher financial fragility and slower recovery from recession. However, while household credit booms have been extensively documented to have this property, we find that corporate debt does not fit the same pattern. Newly collected data on nonfinancial business liabilities for 18 advanced economies over the past 150 years shows that, in the aggregate, greater frictions in corporate debt resolution make for slower recoveries, with weak investment and more persistent “zombie firms” and that this is an important factor in explaining the difference in outcomes relative to household credit booms.

The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some (e.g., Others (e.g., This paper studies the coherence of international interest rates over more than 130 years. The constraints implied by the trilemma are largely borne out by history.

Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008 by Maurice Obstfeld, Jay C. Shambaugh and Alan M. Taylor. Published in volume 99, issue 2, pages 480-86 of American Economic Review, May 2009

What is the relationship between bank capital, the risk of a financial crisis, and its severity? This article introduces the first comprehensive analysis of the long-run evolution of the capital structure of modern banking using newly constructed data for banks’ balance sheets in 17 countries since 1870. In addition to establishing stylized facts on the changing funding mix of banks, we study the nexus between capital structure and financial instability. We find no association between higher capital and lower risk of banking crisis. However, economies with better capitalized banking systems recover faster from financial crises as credit begins to flow back more readily.

For two decades, the consensus explanation of the British Industrial Revolution has placed technological change and the supply side at center stage, affording little or no role for demand or overseas trade. Recently, alternative explanations have placed an emphasis on the importance of trade with New World colonies, and the expanded supply of raw cotton it provided. We test both hypotheses using calibrated general equilibrium models of the British economy and the rest of the world for 1760 and 1850. Neither claim is supported. Trade was vital for the progress of the industrial revolution; but it was trade with the rest of the world, not the American colonies, that allowed Britain to export its rapidly expanding textile output and achieve growth through extreme specialization in response to shifting comparative advantage.

We document that the real effects of monetary shocks last for over a decade. Our approach relies on (1) identification of exogenous and non-systematic monetary shocks using the trilemma of international finance; (2) merged data from two new international historical cross-country databases; and (3) econometric methods robust to long-horizon inconsistent estimates. Notably, the capital stock and total factor productivity (TFP) exhibit greater hysteresis than labor. When we allow for asymmetry, we find these effects with tightening shocks, but not with loosening shocks. When extending the horizon of the responses reported in several recent studies that use alternative monetary shocks, we find similarly persistent real effects, thus supporting our main findings.

What are the medium- to long-term effects of pandemics? Do they differ from other economic disasters? We study major pandemics using rates of return on assets stretching back to the fourteenth century. Significant macroeconomic after-effects of pandemics persist for decades, with rates of return substantially depressed. The responses are in stark contrast to what happens after wars. Our findings also accord with wage and output responses, using more limited data, and are consistent with the neoclassical growth model: capital is destroyed in wars but not in pandemics; pandemics instead may induce more labor scarcity or more precautionary savings, or both.