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Did Purchasing Power Parity Hold in Medieval Europe?
Author(s) -
Bell Adrian R.,
Brooks Chris,
Moore Tony K.
Publication year - 2017
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12167
Subject(s) - purchasing power parity , lira , relative purchasing power parity , economics , arbitrage , cointegration , pound (networking) , pound sterling , unit root , law of one price , exchange rate , parity (physics) , financial economics , monetary economics , econometrics , economy , price level , physics , mid price , particle physics , world wide web , computer science
This paper employs a unique, hand‐collected dataset of exchange rates for five major currencies (the lira of Barcelona, the pound sterling of England, the pond groot of Flanders, the florin of Florence and the livre tournois of France) to consider whether the law of one price and purchasing power parity held in Europe during the late fourteenth and early fifteenth centuries. Using single series and panel unit root and stationarity tests and cointegration analysis on 10 real exchange rates between 1383 and 1411, we show that the parity relationship held for the pound sterling and some of the Florentine florin series individually and for almost all of the groups that we investigate. Our findings add to the weight of evidence that trading and arbitrage activities stopped real exchange rates deviating permanently from fair values. This research extends the results reported in other studies back more than 600 years.