Economics Commons^™

Can Futures Markets Quell Money Market Volatility? A Look At Us Money Markets Before And Since Commodities Futures Contracts, Joseph Santos

Economics Staff Paper Series

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 …