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Lost in intervention. The Harrod--Balassa--Samuelson effect on the peseta/dollar real exchange rate (1870--1998)

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  • José María Serrano
  • María Dolores Gadea
  • Marcela Sabaté

Abstract

We have decomposed the peseta/dollar real exchange rate (1870--1998) into its trend and cyclical components and used the former to proxy its time-varying equilibrium. Then, we have compared changes in the equilibrium with changes in the Spanish and the USA productivity differentials to identify years that do not fit with the Harrod--Balassa--Samuelson (HBS) hypothesis. The greatest maladjustment is found in the 1940s and 1950s, decades of strong exchange rate intervention in Spain. Conversely, the link between equilibrium and differentials adjusts to the hypothesis when using the non-intervened peseta/dollar exchange rate on the Tangier black market. These contrasting results back up the idea that exchange rate intervention, so common in developing countries, might explain their scanter evidence in favour of the HBS effect.

Suggested Citation

  • José María Serrano & María Dolores Gadea & Marcela Sabaté, 2016. "Lost in intervention. The Harrod--Balassa--Samuelson effect on the peseta/dollar real exchange rate (1870--1998)," Applied Economics Letters, Taylor & Francis Journals, vol. 23(14), pages 1012-1017, September.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:14:p:1012-1017
    DOI: 10.1080/13504851.2015.1128070
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