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α: calibrated so average coauthorship-adjusted count equals average raw count
This article examines one feature of the pre—Federal Reserve financial system that has not been widely researched: the market for bank drafts (the “domestic exchanges”). Though the exchanges existed for nearly a century, critics argued that exchange rate fluctuations exacerbated financial panics. We find, using cointegration analysis over the period from 1899 to 1908, that differences in growth rates across regions caused predictable movements in rates. We conclude that the exchanges promoted efficiency in the payments system. This supports the view that the private sector might have developed a unified national system had the Fed not abolished the exchanges.