Real Exchange Rates over a Century: The Case of the Drachma/Sterling Rate, 1833-1939
AbstractRecent studies on real exchange rates advocate the use of long samples in order to reveal the low frequency properties of the processes. The present paper contributes to this strand of the literature by exploiting recently released time series for the drachma/sterling rate for the period 1833-1939. This is an interesting period as it covers different exchange rate regimes and the effects of important historical events. In the paper, the mean-reverting behaviour of the real drachma/sterling exchange rate is initially examined applying univariate unit root tests and then the validity of Purchasing Power Parity (PPP) is tested using cointegration analysis. The results provide support for a weak PPP relationship, which turns out to be robust across different sub-periods characterised by different exchange rate regimes. Adjustment to PPP is reached at a relatively high speed and occurs via movements of the nominal exchange rate.
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Bibliographic InfoPaper provided by Bank of Greece in its series Working Papers with number 66.
Length: 23 pages
Date of creation: Jan 2008
Date of revision:
real exchange rates; cointegration; PPP;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
- N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-23 (All new papers)
- NEP-CBA-2008-02-23 (Central Banking)
- NEP-HIS-2008-02-23 (Business, Economic & Financial History)
- NEP-IFN-2008-02-23 (International Finance)
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