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Exchange Rates and Casualties During the First World War

  • George J. Hall

I estimate two factor models of Swiss exchange rates during the FirstWorldWar. I have data for five of the primary belligerents: Britain, France, Italy, Germany, and Austria-Hungary. At the outbreak of the war, these nations suspended convertibility of their currencies into gold with the promise that after the war each would restore convertibility at the old par. However, once convertibility was suspended, the value of each currency depended on the outcome of the war. I decompose exchange rate movements into a common trend, a common factor, and country-specific factors. Movements in the common trend are consistent with the quantity theory of money. The common factor contains information on contemporaries' expectations about the war's resolution. Innovations to this common factor are correlated with time series on soldiers killed, wounded, and taken prisoner.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9261.

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Date of creation: Oct 2002
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Publication status: published as Hall, George J. "Exchange Rates And Casualties During The First World War," Journal of Monetary Economics, 2004, v51(8,Nov), 1711-1742.
Handle: RePEc:nbr:nberwo:9261
Note: EFG IFM PE
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  1. Anderson, Evan W. & McGrattan, Ellen R. & Hansen, Lars Peter & Sargent, Thomas J., 1996. "Mechanics of forming and estimating dynamic linear economies," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 4, pages 171-252 Elsevier.
  2. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
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  4. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, March.
  5. Roll, Richard, 1972. "Interest Rates and Price Expectations During the Civil War," The Journal of Economic History, Cambridge University Press, vol. 32(02), pages 476-498, June.
  6. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
  7. Michael D. Bordo & Eugene N. White, 1990. "British and French Finance During the Napoleonic Wars," NBER Working Papers 3517, National Bureau of Economic Research, Inc.
  8. Kristen L. Willard & Timothy W. Guinnane & Harvey S. Rosen, 1995. "Turning Points in the Civil War: Views from the Greenback Market," NBER Working Papers 5381, National Bureau of Economic Research, Inc.
  9. repec:cup:jechis:v:60:y:2008:i:01:p:216-231_00 is not listed on IDEAS
  10. McCandless, George T, Jr, 1996. "Money, Expectations, and U.S. Civil War," American Economic Review, American Economic Association, vol. 86(3), pages 661-71, June.
  11. Bordo, Michael D. & White, Eugene N., 1991. "A Tale of Two Currencies: British and French Finance During the Napoleonic Wars," The Journal of Economic History, Cambridge University Press, vol. 51(02), pages 303-316, June.
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