Capital Market Integration and Exchange-Rate Regimes in Historical Perspective

This chapter uses very long time series of historical data to investigate the cross-country convergence of real and nominal short-term and long-term interest rates across exchange-rate regimes. Consistent with theory, the behavior of nominal interest rates varies considerably across regimes, while the behavior of real interest rates, in contrast, proves to be very nearly the same under the classical gold-standard, Bretton Woods and floating-rate regimes. The chapter goes on to discuss theoretical reasons for this neutrality and to present related qualitative evidence on the similarity of important capital-market institutions in the gold and floating-rate periods, and on the changes in such institutions that took place during the latter