Capital markets and grain prices: assessing the storage cost approach

Wolfgang Keller, Carol H. Shiue () and Xin Wang ()
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Carol H. Shiue: University of Colorado, CEPR, NBER, and CESifo
Xin Wang: Peking University

Cliometrica, 2020, vol. 14, issue 2, No 5, 367-396

Abstract: 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 (Am Econ Rev 74:174–187, 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 implied by bank rates data, in terms of both the average interest rates and capital market integration. Moreover, the results are stronger than interest rate figures derived from the bills of exchange rates. The paper also assesses the storage cost approach’s robustness to measurement error, incomplete information, outliers, and other factors.

Keywords: Storage cost approach; Capital markets; Asset pricing in 19th century United States (search for similar items in EconPapers)
JEL-codes: G21 N01 N21 O16 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Capital Markets and Grain Prices: Assessing the Storage Cost Approach (2018)
Working Paper: Capital Markets and Grain Prices: Assessing the Storage Cost Approach (2018)
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DOI: 10.1007/s11698-019-00192-z

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