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Nominal And Real Exchange Rates And Purchasing Power Parity During The Guatemalan Float, 1897-1922

  • Thomas E. Schweigert

    ()

    (Department of Economics, University of Wisconsin)

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    From around 1897 until 1924 the Guatemalan peso was a fiat currency whose exchange value floated against the U.S. dollar. The behavior of the nominal exchange rate is consistent with purchasing power parity. The hypothesis that the elasticities of the exchange rate with respect to the domestic money supply and foreign price level are plus 1 and minus 1 cannot be rejected. The exchange rate, money supply and foreign price level each appear to follow a random walk with drift but are cointegrated, implying a stationary real exchange rate. The behavior of the real exchange rate is consistent with fundamentals. Terms of trade improvements and years of good coffee harvests are associated with real appreciation. The WWI period, which likely diminished or reversed long term capital inflows, is associated with real depreciation.

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    File URL: http://www.jed.or.kr/full-text/27-2/schweigert.PDF
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    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 27 (2002)
    Issue (Month): 2 (December)
    Pages: 127-142

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    Handle: RePEc:jed:journl:v:27:y:2002:i:2:p:127-142
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    1. Ardeni, Pier Giorgio & Lubian, Diego, 1989. "Purchasing power parity during the 1920s," Economics Letters, Elsevier, vol. 30(4), pages 357-362, October.
    2. Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
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    5. Taylor, Mark P. & McMahon, Patrick C., 1988. "Long-run purchasing power parity in the 1920s," European Economic Review, Elsevier, vol. 32(1), pages 179-197, January.
    6. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
    7. Alston Flynn, N. & Boucher, Janice L., 1993. "Tests of long-run Purchasing Power Parity using alternative methodologies," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 109-122.
    8. Hansen, Bruce E., 1992. "Efficient estimation and testing of cointegrating vectors in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 87-121.
    9. Grilli, Vittorio & Kaminsky, Graciela, 1991. "Nominal exchange rate regimes and the real exchange rate : Evidence from the United States and Great Britain, 1885-1986," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 191-212, April.
    10. Teitel, Simon & Colman Sercovich, Francisco, 1984. "Latin America," World Development, Elsevier, vol. 12(5-6), pages 645-660.
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    12. Dornbusch, Rudiger, 1975. "Exchange Rates and Fiscal Policy in a Popular Model of International Trade," American Economic Review, American Economic Association, vol. 65(5), pages 859-71, December.
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    15. Frenkel, Jacob A., 1978. "Purchasing power parity : Doctrinal perspective and evidence from the 1920s," Journal of International Economics, Elsevier, vol. 8(2), pages 169-191, May.
    16. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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