DP12453 The making of a national currency. Spatial transaction costs and money market integration in Spain (1825-1874)

Author(s): Nektarios Aslanidis, Alfonso Herranz-Loncán, Pilar Nogues-Marco
Publication Date: November 2017
Keyword(s): Bills of Exchange, Financial Development, Legal Systems, Money Market Convergence, Money Market Efficiency, Money Market Integration, Real Bills Doctrine, Spanish National Currency, Specie-Point Mechanism, transaction costs
JEL(s): E02, E42, F02, F15, F31, F36, K00, L10, N13, N73, R40
Programme Areas: Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12453

This article analyses the integration of the Spanish money market in the 19th century. We use a Band-TAR model of prices in Madrid of bills of exchange on 9 Spanish cities to measure convergence and efficiency in the market between 1825 and 1875. While price gaps between cities were significantly reduced during the period, no progress took place in efficiency. We suggest that increasing convergence was associated to the reduction in transaction costs, which started before the railways through improvements in roads and postal services. By contrast, increases in efficiency were prevented by a very restrictive regulation of arbitrage.