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interest rate volatility, seasonal cycles, futures contracts, financial innovations, antebellum money markets


This paper offers the introduction of futures markets, and the resulting substitution away from consignment contracts around 1874, as the reason why early US money markets are relatively more volatile, and far less seasonal, than their post-1874 counterparts. Until 1874, movements in interest rates were erratic and financial instabilities imparted relatively large shocks to money markets, particularly in the autumn months. After 1874, the effects of financial instabilities on interest rates diminished and the regularization of seasonal movements was attained. The paper demonstrates the plausibility of this claim using the standard mean-variance framework of the spot price volatility literature, where producers and speculators are assumed risk averse and risk neutral, respectively. Results indicate that the ability to hedge in the futures markets increases the price sensitivities of aggregate supply and aggregate demand, thereby diminishing the variability of both the price level and the interest rate in the presence of supply and/or demand shocks.


Department of Economics, South Dakota State University

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