Beneath the Gold Points: European Financial Market Integration, 1844-1870

43 Pages Posted: 24 Oct 2017

See all articles by Vincent Bignon

Vincent Bignon

Banque de France

Jinzhao Chen

ESC Clermont Business School; Université Clermont Auvergne - Clermont Recherche Management (CleRMa) EUM

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS)

Date Written: October 2017

Abstract

We measure the degree of financial integration among the top five financial centers of mid-19th-century Europe by applying threshold-regression analysis to a new database of exchange rates and bullion prices. We find that, instead of London, Hamburg, Frankfurt or Amsterdam, it was Paris that played the role of hub of European foreign exchange markets. We also document a high level of financial integration before the gold standard period, with estimated transaction costs far lower than historically-observed “gold” and “silver points” (i.e., the costs to bullion arbitrage). We review the assumptions of the classical gold-point arbitrage model and conclude that TAR-computed thresholds cannot be interpreted as transaction costs in the bullion trade. High integration may be explained not by low transaction costs in bilateral bullion arbitrage, but by the availability of multilateral financial arbitrage techniques.

Keywords: Financial integration, efficiency, exchange rate, gold points, TAR model

JEL Classification: F3, G15, N23

Suggested Citation

Bignon, Vincent and Chen, Jinzhao and Ugolini, Stefano, Beneath the Gold Points: European Financial Market Integration, 1844-1870 (October 2017). Banque de France Working Paper No. 647, Available at SSRN: https://ssrn.com/abstract=3057367 or http://dx.doi.org/10.2139/ssrn.3057367

Vincent Bignon (Contact Author)

Banque de France ( email )

DGEI 49-1430
31 rue Croix des Petits Champs
Paris, 75001
France
+33142924330 (Phone)

Jinzhao Chen

ESC Clermont Business School ( email )

4 Bd Trudaine, Clermont-Ferrand
Clermont-Ferrand, 63000
France

Université Clermont Auvergne - Clermont Recherche Management (CleRMa) EUM ( email )

France

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS) ( email )

21, Allée de Brienne
Toulouse, 31042
France

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