MARKET INTEGRATION IN THE GOLDEN PERIPHERYTHE LISBON/LONDON EXCHANGE

The existence of a self-regulating arbitrage mechanism under the gold standard has been tradi-tionally considered as one of its main advantages, and attracted a corresponding research interest.This research is arguably relevant not only to test for the effciency of the gold points, but also tostudy the evolution of financial integration during the so-called first era of globalization. Our firstaim with this paper is to contribute to the enlargement of the scope of the literature by consideringthe case of Portugal that adhered to the system, in 1854, at a much earlier phase than the ma-jority of countries, thus allowing for a broader perspective on the evolution of the effciency of theforeign exchange market. As a typical peripheral country, Portugal can be used as the startingpoint for a study of the degree of integration of the periphery within the system. Furthermore,the Portuguese exchange also illustrates the role in practice of large players in sustaining currencystability, over and beyond the atomistic forces of arbitrage and speculation assumed in conven-tional theoretical frameworks. We also address the question of the credibility of the authorities'commitment to the standard, through the perspective of the target zone literature....