Monetary Policy and Regional Interest Rates in the United States, 1880-2002

53 Pages Posted: 13 Dec 2004

See all articles by John Landon-Lane

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics

Hugh Rockoff

Newark College of Arts & Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2004

Abstract

The long running debate among economic historians over how long it took regional financial markets in the United States to become fully integrated should be of considerable interest to students of monetary unions. This paper reviews the debate, discusses the implications of various hypotheses for the optimality of the US monetary union, and presents some new findings on the origin and diffusion of monetary shocks. It appears that financial markets were integrated in the late nineteenth and early twentieth centuries in the sense that monetary shocks were routinely transmitted from one part of the United States to another. In particular, shocks to interest rates in the eastern financial centers were routinely transmitted to the periphery. However, it also appears that during this period significant shocks to bank lending rates in the periphery often arose on the periphery itself. This suggests that a nineteenth century monetary authority that relied on operations confined to eastern financial centers would have had a difficult time managing the U.S. monetary union. After World War II the problem of eruptions on the periphery declined.

Suggested Citation

Landon-Lane, John and Rockoff, Hugh T., Monetary Policy and Regional Interest Rates in the United States, 1880-2002 (November 2004). NBER Working Paper No. w10924, Available at SSRN: https://ssrn.com/abstract=622868

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

Hugh T. Rockoff (Contact Author)

Newark College of Arts & Sciences - Department of Economics ( email )

360 ML King Jr. Blvd.
Newark, NJ 07102
United States
732-932-7857 (Phone)
732-932-7416 (Fax)

National Bureau of Economic Research (NBER)

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United States

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