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The Paradox of Interest Rates of the Greenback Era: A Reexamination

Oleksandr Zhylyevskyy ()

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: The two leading explanations for the counterintuitive behavior of interest rates during the Greenback Era (1862–1878) – the resumption expectations model of Calomiris (1988) and the capital flow argument of Friedman and Schwartz (1963) – are inconsistent with each other in terms of their treatment of financial arbitrage. A methodology to identify unexploited arbitrage opportunities in financial data is proposed. Observable returns strongly suggest that the money market of the Greenback Era did not systematically admit arbitrage, except possibly around the times of the Gold Corner of 1869 and the Panic of 1873, which implies that Calomiris provides a more plausible explanation.

Keywords: Greenback Era; money market; arbitrage opportunity; interest rate paradox (search for similar items in EconPapers)
JEL-codes: N21 (search for similar items in EconPapers)
Date: 2010-10-12
New Economics Papers: this item is included in nep-mon
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Published in Journal of Monetary Economics, November 2010, vol. 57 no. 8, pp. 1026-1037

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http://dx.doi.org/10.1016/j.jmoneco.2010.10.003

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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:32050

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