Money market integration in Barcelona and Bruges

Identifier:  TFG:5956

Handle: https://hdl.handle.net/20.500.11797/TFG5956

Authors:  Carmona Ferrer, Anna

Abstract:
The appearance of bills of exchange set a turning point in the development of the medieval economy. Their creation in the 13th century allowed capitalism to advance without the invention of paper money. However, apart from this role, they also represented the exchange rate between two different currencies. Focusing on this aspect, questions arise as to whether there was arbitrage in their trading at that time and if, as a result, the long-term prices of bills of exchange (with uniform conditions of both maturity and risk linked because of their places of issue and purchase) were equalised in order to analyse the state of integration of their currency market. In response to these questions, by using monthly data on Barcelona and Bruges’ bills of exchange from the late 14th and early 15th centuries, and by specifying their historical context, applying econometric concepts and estimating both their long-term relationship (with ordinary least squares regressions) and their short-term correction process (with error correction models), an answer to those questions was found. 4 The distance, the slowness in the transmission of information and the uncertainty generated in this wait were the reasons why the markets for these bills of exchange were not cointegrated and also the cause for these variables to follow an error correction process with the final objective of reaching a state of convergence in their values.