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Research Article

Exchange rates and prices in Spain during the gold standard (1868-1914). A test of purchasing power parity

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ABSTRACT

The aim of this paper is to test the purchasing power parity theory for the exchange rates between the peseta and both the French franc and the pound sterling for the period 1868–1914. The stationarity of the real exchange rate is tested using linear and non-linear unit root tests and wholesale and consumer price series. The results show that possible short-term deviations in the real exchange rate series are corrected in the long term, so the purchasing power parity theory holds.

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Acknowledgments

The authors gratefully acknowledge the financial support from the Spanish Ministerio de Ciencia y Tecnología, Agencia Española de Investigación (AEI) and European Regional Development Fund (ERDF, EU) under grants ECO2017-83255-C3-1-P (AEI/ERDF, EU), ECO2017-83255-C3-3-P (AEI/ERDF, EU) and ECO2016-81901-REDT (M. D. Gadea) and Gobierno de Aragon, SEIM (G. Fabro and M.D. Gadea).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 See, among others, Chortareas, Kapetanios, and Shin (Citation2002); Cerrato and Satantis (Citation2006); Cook (Citation2008) and Arize (Citation2011).

2 A complete panorama of the fundaments of the PPA theory can be found in Officer (Citation1982).

3 Froot and Rogoff (Citation1995); Shively (Citation2001) and Coakley, Kellard, and Snaith (Citation2005).

4 Among the papers that have tested the PPP theory for the case of the peseta, for different currencies and periods, we can highlight Serrano Sanz, Gadea, and Sabaté (Citation1998); Montañés and Clemente (Citation1999); Sabaté, Gadea, and Serrano Sanz (Citation2003, Citation2005); Gadea and Sabaté (Citation2004) and Fabro and Aixalá (Citation2011).

5 Frankel (Citation1986).

6 See, among others, Chortareas, Kapetanios, and Shin (Citation2002); Sarno and Taylor (Citation2002); Liew, Baharumshah, and Chong (Citation2004); Sarno (Citation2005); Bahmani- Oskooee and Gelan (Citation2006); Cerrato and Satantis (Citation2006); Bahmani-Oskooee, Kutan, and Zhou (Citation2009) and Arize (Citation2011).

7 Some authors, such as Yoon (Citation2008), find that real exchange rates show a more stationary behaviour in periods dominated by an institutional context of fixed exchange rates than during periods of flexible exchange rates.

8 See Kapetanios, Shin, and Snell (Citation2003), Sollis (Citation2009) and Omay, Emirmahmutoglu, and Hasanov (Citation2018).

9 They extend the proposal of Enders and Lee (Citation2012a, Citationb). The authors appreciate the help provided by Tolga Omay in the implementation of these tests.

Additional information

Funding

This work was supported by the (MICINU, AEI/ERDF, EU) [ECO2017-83255-C3-1-P and ECO2017-83255-C3-3-P].

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