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Exchange rates and prices in the Netherlands and Britain over the past four centuries

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  • James R. Lothian

    (Fordham University)

  • John Devereux

    (Queens College, CUNY)

Abstract

This paper examines exchange-rate and price-level data for the long period 1590-2009 for the Netherlands and the United Kingdom (earlier the Dutch Republic and England), countries that at various times over this near four century span have differed substantially in terms of the pace at which their economies were developing, have operated under a variety of exchange rate regimes, and have been subjected to an extremely wide variety of real shocks. The principal conclusion of this study is the resiliency of the simple purchasing-power-parity model and of the law of one price at the microeconomic level. Both take some heavy blows during this close to four-century long sample period. In the end, however, they emerge surprisingly unscathed. Real factors at times appear to have had substantial effects on real exchange rates and hence PPP, but such effects ultimately dissipate. As a long-run equilibrium condition, PPP holds up remarkably well.

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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 135.

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Length: 30
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:bog:wpaper:135

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  1. Evans, Martin D. D. & Lothian, James R., 1993. "The response of exchange rates to permanent and transitory shocks under floating exchange rates," Journal of International Money and Finance, Elsevier, vol. 12(6), pages 563-586, December.
  2. Coakley, Jerry & Flood, Robert P. & Fuertes, Ana M. & Taylor, Mark P., 2005. "Purchasing power parity and the theory of general relativity: the first tests," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 293-316, March.
  3. Lothian, James R. & Taylor, Mark P., 1997. "Real exchange rate behavior," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 945-954, December.
  4. Francis X. Diebold & Steven Husted & Mark Rush, 1990. "Real exchange rates under the gold standard," Discussion Paper / Institute for Empirical Macroeconomics 32, Federal Reserve Bank of Minneapolis.
  5. JamesR. Lothian & MarkP. Taylor, 2008. "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect?," Economic Journal, Royal Economic Society, vol. 118(532), pages 1742-1763, October.
  6. Kindleberger, Charles P., 1996. "World Economic Primacy: 1500 to 1990," OUP Catalogue, Oxford University Press, number 9780195099027, September.
  7. Allen, Robert C., 2001. "The Great Divergence in European Wages and Prices from the Middle Ages to the First World War," Explorations in Economic History, Elsevier, vol. 38(4), pages 411-447, October.
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