PDF What Was the Interest Rate Then? A Data Study Lawrence H ...
What Was the Interest Rate Then? A Data Study Lawrence H. Officer*
Department of Economics, University of Illinois at Chicago
"Whither must we go for a record of the `rate of interest'?"-- (MacDonald, 1912, p. 361)
*E-mail LOfficer@uic.edu. The author is indebted to Sam Williamson for encouragement in producing this study.
Table of Contents
List of Tables I. Methodology II. Short-Term Interest Rate, Ordinary Funds: United Kingdom III. Short-Term Interest Rate, Ordinary Funds: United States IV. Short-Term Interest Rate, Surplus Funds: United States V. Short-Term Interest Rate, Surplus Funds: United Kingdom VI. Long-Term Interest Rate: United Kingdom VII. Long-Term Interest Rate: United States Notes References
2
Page 3 5 11 25 39 51
58 80 92 99
3
List of Tables
Table
Page
1. Compilations of London Market Discount Rate on Bills of Exchange, 1800-1923 14
2. Compilations of Interest Rate on U.K. Three-Month Treasury Bills, 1919-2001 18
3. Components of U.K. Short-Term Interest Rate: Ordinary Funds, 1790-2001
20
4. Outstanding Instruments in New York Money Market, 1925-1933
28
5. Compilations of U.S. Commercial-Paper Interest Rate, 1831-1935
30
6. Compilations of U.S. Three-Month Treasury-Bill
Secondary-Market Yield, 1934-2001
35
7. Components of U.S. Short-Term Interest Rate: Ordinary Funds, 1831-2001
37
8. Brokers' Loans Made by New York Banks, 1926-1941
41
9. Outstanding U.S. Surplus-Funds Money-Market Instruments, 1920s
43
10. Compilations of Interest Rate on Call Loans at New York Stock Exchange,
1857-1959
45
11. Compilations of Federal-Funds Rate, 1954-2001
48
12. Components of U.S. Short-Term Interest Rate: Surplus Funds, 1857-2001
50
13. Compilations of London Call-Money Rate, 1855-1972
53
14. Compilations of Three-Month Interbank-Deposit Rate, 1986-2001
55
15. Components of U.K. Short-Term Interest Rate, Surplus Funds, 1855-2001
56
16. Compilations of Annuities/Consols Price or Yield, 1729-1923
Series Not Spanning 1881-1902
62
17. Compilations of Consols Price or Yield, 1753-1923
Series That Ignore 1881-1902 Issues
64
18. Compilations of Consols Price or Yield, 1753-1923
Series That Address Option to Redeem at Par in 1880s
68
4
19. Compilations of Consols Price or Yield, 1753-1923
Series That Address Both Existence of Temporary Annuity in 1889-1902
and Option to Redeem at Par in 1923
70
20. Compilations of Annuities/Consols Price or Yield, 1729-1923
Series That Address Existence of Temporary Annuity in 1889-1902
71
21. Compilations of British-Government-Securities Yield, 1919-2001
73
22. Components of U.K. Long-Term Interest Rate, 1729-2001
75
23. Adjusted Goschen-Consols Yield, 1889-1902
78
24. Compilations of U.S. Long-Term Interest Rate, 1798-2001
86
25. Components of U.S. Long-Term Interest Rate, 1798-2001
90
5
I. Methodology
A. Objective
This study provides a complete description of the development of the interest-rate series in What Was the Interest Rate Then? The objective of the project was to generate interest-rate series for the United States and United Kingdom with specified properties, as follows:
1. The series are to end in 2001 and go back in time as far as data permit.
2. The series are to be continuous.
3. The series are to be annual in frequency.
4. The series are to be expressed, as is conventional, in percent per year and with two decimal places.
5. For a given interest-rate concept, the series should be symmetrical across the two countries, at least in a methodological sense.
6. Three interest-rate concepts are pursued: short-term interest rate for ordinary funds, short-term interest rate for surplus funds, and long-term interest rate.
Two of the concepts are short-term in nature, related to the money market. Pertinent features of the money market are gleaned from the following passage in Wilson (1992, pp. 797-798).
A money market may be defined as a centre in which financial institutions congregate for the purpose of dealing impersonally in monetary assets.... From the point of view of the commercial banks it should be able to provide an investment outlet for any temporarily surplus funds that may be available....For a money market of some kind to exist, there must be a supply of temporarily idle cash that is seeking short-term investment in an earning asset. There must also be a demand for temporarily available cash either by banks (and other financial institutions)...or by the government.
In a similar vein, Lewis (1992, p. 271) defines the money market as "a network of brokers, dealers and financial institutions which transact in short-term credit, enabling large sums of money to be channelled quickly from suppliers of funds to those demanding funds for use over relatively short periods of time." Also, Haubrich (1992, p. 798) writes: "The modern wholesale money market brings together the many larger borrowers and lenders who manage short-term positions."
The important conclusion is that the money market involves transactions in shortterm assets. In practice, the maturity of the asset or contractual arrangement runs to a
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