The making of a national currency. Spatial transaction costs and money market integration in Spain (1825-1874)

This article analyses the integration of the Spanish money market in the 19th century. We use a Band-TAR model of prices of bills of exchange in 10 Spanish cities to measure convergence and efficiency in the market between 1825 and 1875. While price gaps generally decreased during the period, progress in efficiency was concentrated in a small group of cities. We suggest that increasing convergence was associated to the reduction in transaction costs, which started before the railways and the telegraph through improvements in roads and postal services. By contrast, the heterogeneous behavior of efficiency might have been largely associated to changes in the economic geography of Spain and their effects on the monetary market leadership structure.