EH.Net Abstracts in Economic History

                ABSTRACTS IN ECONOMIC HISTORY
                     (c) 2003 EH.Net
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Name: Rafael Torres Sanchez
Email: rtorres at unav.es
Institution: Universidad de Navarra

Co-authors:

J. Gomez Biscarri
IESE Business School, Universidad de Navarra Avenida Pearson, 21 Barcelona
E- 08034, SPAIN
E-mail: jgbiscarri at iese.edu

F. Perez de Gracia
Department of Economics, Universidad de Navarra E-31080 Pamplona
SPAIN

Title: Exchange Rate Behavior and Exchange Rate Puzzles: Why the XVIII Century Might Help

Internet Address of abstracted work: not available

By mail:
Department of Economics, Universidad de Navarra E-31080 Pamplona
SPAIN

Language: English

Abstract:
This paper analyzes the behavior of exchange rates in Spain during the
XVIII century. We briefly explain how the exchange rate was determined and
place special emphasis on the economic context, especially in what refers
to the relationships of Spain and Great Britain. We postulate that the
exchange rate during the XVIII century was mostly a market rate, that is,
the result of market forces. We proceed to assess the extent to which the
exchange rate responded to market fundamentals by testing the purchasing
power parity (PPP) hypothesis and partial versions of the monetary model of
exchange rate determination. The results suggest that the PPP hypothesis
held during the whole century, with the exchange rat tracking quite closely
the behavior of inflation differentials. Deviations from PPP seem to appear
at the end of the century, due mostly to changes in the real exchange rate
caused by the bilateral trade balance between Spain and Great Britain.

Bibliography: Sanchez, Rafael Torres, J. Gomez Biscarri and F. Perez de Gracia . "Exchange Rate Behavior and Exchange Rate Puzzles: Why the XVIII Century Might Help." Universidad de Navarra, working paper, 2003.

Subject: S
Geographical Area: 4
Country/Region: Spain
Time Period: 6

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