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Purchasing power parity and the behavior of prices and nominal exchange rates across exchange-rate regimes

Listed author(s):
  • Lothian, James R.

The evidence presented in this paper shows that purchasing power parity as a long-run proposition is indeed a very useful approximation. We see this quite clearly in the panel data for three historical periods examined here – the classical gold standard era from 1870 to 1914, the interwar period from 1921 to 1939, and the period after World War II from 1959 to 1998. Price-level behavior across countries differs in the way that PPP suggests when monetary arrangements differ and is highly similar when monetary arrangements are themselves similar. Inflation rates adjusted for exchange rate changes in general are highly correlated and bear a one-to-one relation to one another within and across the three periods and the varied monetary regimes that prevailed.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261560616300614
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 69 (2016)
Issue (Month): C ()
Pages: 5-21

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Handle: RePEc:eee:jimfin:v:69:y:2016:i:c:p:5-21
DOI: 10.1016/j.jimonfin.2016.06.015
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. 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.
  2. Lothian, James R, 1985. "Equilibrium Relationships between Money and Other Economic Variables," American Economic Review, American Economic Association, vol. 75(4), pages 828-835, September.
  3. Gandolfi, Arthur E & Lothian, James R, 1983. "International Price Behavior and the Demand for Money," Economic Inquiry, Western Economic Association International, vol. 21(3), pages 295-311, July.
  4. Darby, Michael R. & Lothian, James R. & Gandolfi, Arthur E. & Schwartz, Anna J., 1983. "The International Transmission of Inflation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226136417, September.
  5. Obstfeld,Maurice & Taylor,Alan M., 2005. "Global Capital Markets," Cambridge Books, Cambridge University Press, number 9780521671798, August.
  6. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
  7. 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.
  8. Lothian, James R., 2002. "The internationalization of money and finance and the globalization of financial markets," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 699-724, November.
  9. Michael R. Darby & James R. Lothian, 1983. "V. Conclusions: Conclusions on the International Transmission of Inflation," NBER Chapters,in: The International Transmission of Inflation, pages 491-524 National Bureau of Economic Research, Inc.
  10. Lothian, James R & McCarthy, Cornelia H, 2002. "Real Exchange Rate Behaviour Under Fixed and Floating Exchange Rate Regimes," Manchester School, University of Manchester, vol. 70(2), pages 229-245, March.
  11. Anthony Cassese & James R. Lothian, 1983. "The Timing of Monetary and Price Changes and the International Transmission of Inflation," NBER Chapters,in: The International Transmission of Inflation, pages 58-82 National Bureau of Economic Research, Inc.
  12. Lothian, James R. & McCarthy, Cornelia H., 2009. "The behavior of money and other economic variables: Two natural experiments," Journal of International Money and Finance, Elsevier, vol. 28(7), pages 1204-1220, November.
  13. Lucas, Robert E. & Nicolini, Juan Pablo, 2015. "On the stability of money demand," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 48-65.
  14. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  15. Gailliot, Henry J, 1970. "Purchasing Power Parity as an Explanation of Long-Term Changes in Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(3), pages 348-357, August.
  16. Hugh Rockoff, 1984. "Some Evidence on the Real Price of Gold, Its Costs of Production, and Commodity Prices," NBER Chapters,in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 613-650 National Bureau of Economic Research, Inc.
  17. Lothian, James R. & Taylor, Mark P., 2000. "Purchasing power parity over two centuries: strengthening the case for real exchange rate stability: A reply to Cuddington and Liang," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 759-764, October.
  18. Lothian, James R, 1976. "The Demand for High-Powered Money," American Economic Review, American Economic Association, vol. 66(1), pages 56-68, March.
  19. Michael R. Darby & James Lothian, 1989. "The International Transmission of Inflation Afloat," NBER Chapters,in: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz, pages 203-244 National Bureau of Economic Research, Inc.
  20. Luis A. V. Catão & Solomos N. Solomou, 2005. "Effective Exchange Rates and the Classical Gold Standard Adjustment," American Economic Review, American Economic Association, vol. 95(4), pages 1259-1275, September.
  21. James Lothian & Yusif Simaan, 1998. "International Financial Relations Under the Current Float: Evidence from Panel Data," Open Economies Review, Springer, vol. 9(4), pages 293-313, October.
  22. 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.
  23. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-574, November.
  24. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, October.
  25. Lothian, James R., 1987. "The behavior of real exchange rates," International Journal of Forecasting, Elsevier, vol. 3(1), pages 17-42.
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