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Domestic Exchange Rates and Regional Economic Growth in the United States, 1899–1908: Evidence from Cointegration Analysis

Published online by Cambridge University Press:  03 March 2009

Ronnie J. Phillips  and
Harvey Cutler
Ronnie J. Phillips
Affiliation:
Professor and Harvey Cutler is Associate Professor, Department of Economics, Colorado State University, Fort Collins, CO 80523-1771. E-mail: rphillip@lamar.colostate.edu.
Harvey Cutler
Affiliation:
Professor and Harvey Cutler is Associate Professor, Department of Economics, Colorado State University, Fort Collins, CO 80523-1771. E-mail: rphillip@lamar.colostate.edu.
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Abstract

This article examines one feature of the pre—Federal Reserve financial system that has not been widely researched: the market for bank drafts (the “domestic exchanges”). Though the exchanges existed for nearly a century, critics argued that exchange rate fluctuations exacerbated financial panics. We find, using cointegration analysis over the period from 1899 to 1908, that differences in growth rates across regions caused predictable movements in rates. We conclude that the exchanges promoted efficiency in the payments system. This supports the view that the private sector might have developed a unified national system had the Fed not abolished the exchanges.

Type
Articles
Information
The Journal of Economic History , Volume 58 , Issue 4 , December 1998 , pp. 1010 - 1026
Copyright
Copyright © The Economic History Association 1998

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