Exchange Rate Behavior and Exchange Rate Puzzles: Why the XVIII Century Might Help
AbstractThis article explores the behavior of exchange rates in Spain during the XVIII century. We posit that exchange rates were the result of both government intervention over nominal values of currencies and the estimate that the market –of bills of exchange- gave to the value of the currency. We analyze the exchange rates quoted in London on three Spanish cities between 1699 and 1826. After a brief overview of the functioning of the Spanish monetary system and of exchange rate determination, we assess the extent to which the exchange rate responded to market fundamentals by testing some theoretical models of exchange rate determination. The results suggest that purchasing power parity held during the XVIII century, with the exchange rate tracking quite closely the behavior of inflation differentials. Deviations from PPP appeared at the end of the century, due mostly to changes in the real exchange rate caused by the bilateral trade balance between Spain and Great Britain and, maybe, to productivity differentials.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 12/04.
Length: 40 pages pages
Date of creation: Sep 2004
Date of revision:
Publication status: Published, Revista de Historia Economica, 2005, vol. 1: pp. 143-174
Contact details of provider:
Web page: http://www.unav.es/facultad/econom
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gelman, Jorge Daniel, 1987. "El gran comerciante y el sentido de la circulación monetaria en el Río de la Plata colonial tardío," Revista de Historia Económica, Cambridge University Press, vol. 5(03), pages 485-507, December.
- Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 200-224.
- de la Escosura, Leandro Prados, 1984. "El comercio hispano-britanico en los siglos XVIII y XIX. I. Reconstruccion," Revista de Historia Económica, Cambridge University Press, vol. 2(02), pages 113-162, September.
- Kenneth A. Froot & Kenneth Rogoff, 1996.
"Perspectives on PPP and Long-Run Real Exchange Rates,"
NBER Working Papers
4952, National Bureau of Economic Research, Inc.
- Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
- Schubert, Eric S., 1989. "Arbitrage in the foreign exchange markets of London and Amsterdam during the 18th century," Explorations in Economic History, Elsevier, vol. 26(1), pages 1-20, January.
- Reher, David S., 2001. "Producción, precios e integración de los mercados regionales de grano en la España preindustrial," Revista de Historia Económica, Cambridge University Press, vol. 19(03), pages 539-572, December.
- Rafael Torres, . "Possibilities and Limits: Testing in the Fiscal Military State in the Anglo-Spanish War of 1779-1783," Faculty Working Papers 09/06, School of Economics and Business Administration, University of Navarra.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.