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Abstract
The monetary model of exchange rate determination is tested by means of cointegration analysis for three bilateral drachma exchange rates over the period September 1919 to April 1928. Strong evidence is obtained for the drachma-US dollar case of a long-run relationship which is identified with the monetary model. This implies that market fundamentals accounted for the substantial loss of the external value of the drachma over the period under examination. The failure to identify this model in the other two cases, namely, Drachma-pound sterling and Drachma-French franc, is explained by the monetary policy pursued by Greece during that period.