Hitotsubashi Institute for Advanced Study


Capital Markets and Grain Prices:
Assessing the Storage Cost Approach


This paper evaluates an approach to shed light on capital markets using grain prices, since stored grain incurs interest costs as part of the storage costs. Through this storage cost approach has been applied in McCloskey and Nash (1984) and has potentially wide applicability in situations where interest rate data is not available, this paper provides the first analysis of how well the storage cost approach captures actual capital market developments. Using matched data on bank interest rates and grain prices for early 19th century U.S. regions, we find that the storage cost approach is useful for quantifying the performance of capital markets. While the estimation of region- and year-specific interest rates can be challenging, the approach grain price approach accurately reflects differences in capital market development. Furthermore, the approach is robust to employing time series filtering techniques as well as dealing with unavailable information on harvest times, outliers, and a range of other factors.

Report No.: HIAS-E-74
Author(s): Wolfgang Keller(a), (b), (c), (d)
Carol H. Shiue(a), (b), (c), (d)
Xin Wang(e)
Affiliation: (a) University of Colorado
(b) CEPR
(c) NBER
(d) CESifo
(e) Peking University
Issued Date: September 2018
Keywords: Capital market integration, Financial economic development, U.S. economic history
JEL: O16, N22, N12