Real exchange rates under the gold standard
Purchasing power parity is one of the most important equilibrium conditions in international macroeconomics. Empirically, it is also one of the most hotly contested. Numerous recent studies, for example, have sought to determine the validity of purchasing power parity using data from the post-Bretton-Woods float and have reached different conclusions. We assert that most such studies are flawed for two reasons. First, the post-1973 data contain, by definition, only a very limited amount of the low-frequency information relevant for examination of long-run parity. Second, the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to the modeling of low-frequency dynamics. Both deficiencies are rectified in the present paper, with dramatic results. We construct a new dataset of sixteen real exchange rates covering more than a century of the classic gold standard period, and we study deviations from parity using long-memory models that allow for subtle forms of mean reversion. For each real exchange rate, we find that parity holds in the long run.
|Date of creation:||1990|
|Contact details of provider:|| Postal: 90 Hennepin Avenue, P.O. Box 291, Minneapolis, MN 55480-0291|
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.minneapolisfed.org/pubs/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 165-188.
- Diebold, Francis X & Rudebusch, Glenn D, 1991.
"Is Consumption Too Smooth? Long Memory and the Deaton Paradox,"
The Review of Economics and Statistics,
MIT Press, vol. 73(1), pages 1-9, February.
- Francis X. Diebold & Glenn D. Rudebusch, 1989. "Is consumption too smooth? Long memory and the Deaton paradox," Finance and Economics Discussion Series 57, Board of Governors of the Federal Reserve System (U.S.).
- Diebold, Francis X. & Rudebusch, Glenn D., 1991. "On the power of Dickey-Fuller tests against fractional alternatives," Economics Letters, Elsevier, vol. 35(2), pages 155-160, February.
- Francis X. Diebold & Glenn D. Rudebusch, 1990. "On the power of Dickey-Fuller tests against fractional alternatives," Finance and Economics Discussion Series 119, Board of Governors of the Federal Reserve System (U.S.).
- Jeffrey A. Frankel, 1991. "Quantifying International Capital Mobility in the 1980s," NBER Chapters,in: National Saving and Economic Performance, pages 227-270 National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel, 1989. "Quantifying International Capital Mobility in the 1980s," NBER Working Papers 2856, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey A., 1989. "Quantifying International Capital Mobility in the 1980s," Department of Economics, Working Paper Series qt4fw7c7bh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Officer, Lawrence H., 1983. "Dollar-Sterling Mint Parity and Exchange Rates, 1791–1834," The Journal of Economic History, Cambridge University Press, vol. 43(03), pages 579-616, September.
- Mark Rush & Steven Husted, 1985. "Purchasing Power Parity in the Long Run," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 137-145, February.
- Hakkio, Craig, 1986. "Does the exchange rate follow a random walk? A Monte Carlo study of four tests for a random walk," Journal of International Money and Finance, Elsevier, vol. 5(2), pages 221-229, June.
- Craig S. Hakkio, 1982. "A Reexamination of Purchasing Power Parity: A Multicountry and Multiperiod Study," NBER Working Papers 0865, National Bureau of Economic Research, Inc.
- Clark, Truman A, 1984. "Violations of the Gold Points, 1890-1908," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 791-823, October.
- Diebold, Francis X. & Rudebusch, Glenn D., 1989. "Long memory and persistence in aggregate output," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 189-209, September.
- Francis X. Diebold & Glenn D. Rudebusch, 1988. "Long memory and persistence in aggregate output," Finance and Economics Discussion Series 7, Board of Governors of the Federal Reserve System (U.S.).
- Cheung, Yin-Wong, 1993. "Long Memory in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 93-101, January.
- Lothian, James R., 1990. "A century plus of Yen exchange rate behavior," Japan and the World Economy, Elsevier, vol. 2(1), pages 47-70, March.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
- Perkins, Edwin J., 1978. "Foreign Interest Rates in American Financial Markets: A Revised Series of Dollar-Sterling Exchange Rates, 1833–1900," The Journal of Economic History, Cambridge University Press, vol. 38(02), pages 392-417, June.
- Francis X. Diebold & Marc Nerlove, 1988. "Unit roots in economic time series: a selective survey," Finance and Economics Discussion Series 49, Board of Governors of the Federal Reserve System (U.S.). Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:fip:fedmem:32. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janelle Ruswick)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.