Covered Interest Arbitrage: Then vs. Now
26 Pages Posted: 19 Dec 2004 Last revised: 15 Dec 2022
Date Written: December 2004
Abstract
We introduce a new weekly database of spot and forward US-UK exchange rates as well as interest rates to examine the integration of forward exchange markets during the classical gold standard period (1880-1914). Using threshold autoregressions (TAR), we estimate the transactions cost band of covered interest differentials (CIDs) and compare our results to studies of more recent periods. Our findings indicate that CIDs for the US-UK rate were generally larger during the classical gold standard than any period since. We argue that slower information and communications technology during the gold standard period led to fewer short-term financial flows, higher transactions costs, and larger CIDs.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Globalization and Capital Markets
By Maurice Obstfeld and Alan M. Taylor
-
The Gold Standard as a `Good Housekeeping Seal of Approval'
By Michael D. Bordo and Hugh Rockoff
-
Crises Now and then: What Lessons from the Last Era of Financial Globalization
-
The Great Depression as a Watershed: International Capital Mobility Over the Long Run
By Maurice Obstfeld and Alan M. Taylor
-
Currency Mismatches, Debt Intolerance and Original Sin: Why They are Not the Same and Why it Matters
By Barry Eichengreen, Ricardo Hausmann, ...
-
Emerging Market Spreads: Then Versus Now
By Yishay Yafeh, Nathan Sussman, ...
-
Emerging Market Spreads: Then Versus Now
By Paolo Mauro, Nathan Sussman, ...
-
Emerging Market Spreads: Then Versus Now
By Paolo Mauro, Nathan Sussman, ...
-
By Michael D. Bordo and Finn Kydland
-
Sovereign Risk, Credibility and the Gold Standard: 1870-1913 Versus 1925-31
By Maurice Obstfeld and Alan M. Taylor