The Spanish peseta versus the pound sterling, the French franc and the US dollar (1870--1935). A long floating experience
This paper underlines the relevance of considering breaks in Purchasing Power Parity (PPP) tests, by studying the floating peseta over the period 1870--1935. In some cases, only the stationarity of the real exchange rate in the presence of structural breaks could be accepted. Moreover, breaks clearly improve the significance of the proportionality condition for the peseta/pound, peseta/franc and peseta/dollar exchange rates. So, since breaks are endogenously detected and seem to make economic sense, the PPP hypothesis is considered as a valid equilibrium rule for the peseta exchange rate against the currencies of Spain's main traders between 1870 and 1935.
Volume (Year): 1 (2005)
Issue (Month): 2 (March)
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