The gold standard: Perfectly integrated world markets or slow adjustment of prices and interest rates?

We investigate the balance of payments adjustment mechanism for Canada, the USA, and the UK during the gold standard era. Regardless of whether the data are stationary or non-stationary, the results do not support the assumption of perfectly integrated world markets. The evidence is more consistent with the price-specie-flow mechanism with prices and interest rates adjusting over time to restore equilibrium in the balance of payments.