The pitfalls of estimating transactions costs from price data: evidence from trans-Atlantic gold-point arbitrage, 1886-1905

Andrew Coleman
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Andrew Coleman: Reserve Bank of New Zealand

No DP2007/07, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: This paper argues that bilateral spatial price models do not estimate bilateral transactions costs when trade with third cities is important. The paper examines trans-Atlantic gold arbitrage during the gold standard era by assembling a database indicating when trans-Atlantic gold shipments occurred. It shows that two-way gold shipments between New York and London frequently occurred prior to 1901. However, in 1901 gold shipments to London ceased and were replaced by triangular arbitrage shipments through Paris. Consequently, New York and London gold price data cannot be used to estimate New York-London transactions costs after 1901, as no trade took place.

JEL-codes: F15 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-ure
Date: 2007-04
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Persistent link: http://EconPapers.repec.org/RePEc:nzb:nzbdps:2007/07

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