Economics at your fingertips  

Redemption Costs and Interest Rates under the U.S. National Banking System

Bruce Champ (), Scott Freeman and Warren Weber

Journal of Money, Credit and Banking, 1999, vol. 31, issue 3, 568-89

Abstract: Interest rates under the U.S. National Banking System (1863-1914) appear to imply that banks failed to exploit an arbitrage opportunity for two reasons: yields on government bonds exceeded the tax rate on note issue by approximately 150 basis points, and short-term interest rates varied seasonally. This paper examines whether note redemption costs can explain observed interest rates. We present a model in which redemption costs create a spread between the tax rate on note issue and bond yields and in which temporary seasonal fluctuations in currency demand generate seasonal movements in short-term interest rates. Calibration of the model to actual data lends support to the model's implications. Further, interest rates are shown not to vary seasonally when banks do not incur the costs of note redemption.

Date: 1999
References: Add references at CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Redemption costs and interest rates under the U.S. National Banking System (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing ().

Page updated 2020-02-20
Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:3:p:568-89