Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard, 1879–1913

Eugene Canjels; Gauri Prakash-Canjels; Alan M. Taylor

doi:10.1162/0034653043125149

Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard, 1879–1913

Eugene Canjels¹; Gauri Prakash-Canjels²; Alan M. Taylor^3,4,5,6

¹ Deloitte (United States) · ² Gouvernance, Risque, Environnement, Développement · ³ Center for Economic and Policy Research · ⁴ National Bureau of Economic Research · ⁵ Centre for Economic Policy Research · ⁶ University of California, Davis

The Review of Economics and Statistics 2004 open access

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.

DOI: 10.1162/0034653043125149
Volume: 86 (4)
Pages: 868-882
Language: en
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