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The Empirics of International Currencies: Evidence from the 19th Century

  • Marc Flandreau

    (Centre for Finance and Development)

  • Clemens Jobst

    (Research Center of the Institute for America's Future)

Using a new database for the late 19th century, when the pound sterling circulated all over the world, this paper provides the first review of critical empirical issues in the economics of international currencies. First, we report evidence in favor of the search-theoretic approach to international currencies. Second, we give empirical support to strategic externalities. Third, we provide strong confirmation of the existence of persistence. Finally, we reject the view that the international monetary system is subject to pure path dependency in that it cannot remain locked into some past equilibrium. Our conclusion is that, for the late 19th century at least, money and trade were complements.

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Paper provided by Sciences Po in its series Sciences Po publications with number n°5529.

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Date of creation: Mar 2006
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Handle: RePEc:spo:wpmain:info:hdl:2441/669
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  1. Benjamin H Cohen, 2005. "Currency choice in international bond issuance," BIS Quarterly Review, Bank for International Settlements, June.
  2. Paul R. Krugman, 1979. "Vehicle Currencies And the Structure Of International Exchange," NBER Working Papers 0333, National Bureau of Economic Research, Inc.
  3. Robert P. Flood & Peter M. Garber, 1981. "Gold monetization and gold discipline," International Finance Discussion Papers 190, Board of Governors of the Federal Reserve System (U.S.).
  4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  5. Rey, Helene, 2001. "International Trade and Currency Exchange," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 443-64, April.
  6. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Working Papers 11563, National Bureau of Economic Research, Inc.
  7. Allen Head & Shouyong Shi, 2000. "A Fundamental Theory of Exchange Rates and Direct Currency Trades," Working Papers 993, Queen's University, Department of Economics.
  8. Engineer, Merwan, 2000. "Currency transactions costs and competing fiat currencies," Journal of International Economics, Elsevier, vol. 52(1), pages 113-136, October.
  9. Richard K. Lyons & Michael J. Moore, 2005. "An Information Approach to International Currencies," NBER Working Papers 11220, National Bureau of Economic Research, Inc.
  10. Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approval”," The Journal of Economic History, Cambridge University Press, vol. 56(02), pages 389-428, June.
  11. Wright, Randall, 1995. "Search, evolution, and money," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 181-206.
  12. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide. A Network Analysis of the International Monetary System," CEPR Discussion Papers 5129, C.E.P.R. Discussion Papers.
  13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  14. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
  15. Barry Eichengreen, 2005. "Sterling's Past, Dollar's Future: Historical Perspectives on Reserve Currency Competition," NBER Working Papers 11336, National Bureau of Economic Research, Inc.
  16. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  17. Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
  18. Zhou, Ruilin, 1997. "Currency Exchange in a Random Search Model," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 289-310, April.
  19. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  20. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
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