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Convergence of inflation with a common cycle: estimating and modelling Spanish historical inflation from the 16th to the 18th centuries

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  • José Cendejas Bueno

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  • Cecilia Font de Villanueva

Abstract

The aim of this paper is twofold. First, to obtain inflation rates for the four regions of Spain analysed for the period 1501–1800 by modelling Hamilton’s (American treasure and the price revolution in Spain, 1934 ; War and prices in Spain, 1947 ) price index series by means of an unobserved component model with a common cyclical factor. And second, to prove their long-term convergence process. Therefore, convergence concerns both the cyclical variation of inflation rates common to the four regions, and trend inflation. A complete convergence of the trend inflation occurred once the monetary reforms of Charles II of Spain were introduced in order to redress the previous monetary instability known as inflation of the vellón. The predominance of the vellón in small change and the concentration of the influx of silver when inflation was comparatively lower (second half of the sixteenth century and the seventeenth century) complicate to reach simple conclusions on the monetary origin of inflation exclusively based on precious metals, but, on the contrary, suggest a monetary origin based on copper coin and fiscal distortions. So, monetary stability proved to be a necessary condition for inflation convergence and the fulfilment of the purchasing power parity condition along the eighteen century. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • José Cendejas Bueno & Cecilia Font de Villanueva, 2015. "Convergence of inflation with a common cycle: estimating and modelling Spanish historical inflation from the 16th to the 18th centuries," Empirical Economics, Springer, vol. 48(4), pages 1643-1665, June.
  • Handle: RePEc:spr:empeco:v:48:y:2015:i:4:p:1643-1665
    DOI: 10.1007/s00181-014-0840-8
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    References listed on IDEAS

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    Cited by:

    1. Cendejas Bueno, José Luis & Castañeda, Juan Enrique & Muñoz, Félix, 2015. "Business cycles and monetary regimes in the U.S. (1960 – 2014): A plea for monetary stability," Working Papers in Economic Theory 2015/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

    More about this item

    Keywords

    Convergence of inflation; Common cyclical factor; Unobserved component models; Hamilton’s price series; Inflation of the vellón; C32; E31; E32; E42;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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