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Exchange rate regimes and prices: The cases of Italy, Spain and the United Kingdom (1874-1998)

  • Gadea, María Dolores
  • Kaabia, Monia Ben
  • Sabaté, Marcela

This paper studies the relationship among Italian, Spanish and United Kingdom prices over the period 1874-1998, for most of which the currencies of these three countries maintained a floating exchange rate regime. By using cointegration techniques with broken linear trends, we find a single vector for the period 1874-1935 and two vectors and, consequently, a single common trend for the period 1940-1998. Therefore, this paper provides new evidence of no long-run monetary independence under floating regimes. Furthermore, the price differential dynamics captured by deterministic trends in the period 1940-1998, as well as agreeing with the evidence of long-run transmission of interest rates in the floating post-Bretton Woods era, fit in perfectly with the new de facto taxonomies on exchange rates.

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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 19 (2009)
Issue (Month): 3 (July)
Pages: 477-489

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Handle: RePEc:eee:intfin:v:19:y:2009:i:3:p:477-489
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

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