An Empirical Investigation of the Seasonal Behavior of Interest Rate Differentials During the Gold Standard

This empirical investigation of interest rate differentials between the United States and Britain is designed to address two questions which arise from reports in the contemporary literature of systematic opportunities for profit by borrowing in London and investing in the United States during the late spring and summer months. First, how similar were the seasonal patterns of interest rate fluctuations in the United States and Britain? Second, did seasonal movements in exchange rates tend to increase or decrease the profit opportunities afforded by borrowing in Britain and investing in the United States during the late spring and early summer months? Uncovered interest parity suggests that movements in exchange rates should offset interest rate differentials between the United States and Britain. Neither of these questions have been satisfactorily addressed in the empirical literature.