Interest parity conditions during the classical gold standard (1880 -1914) - Evidence from the investment demand for bills of exchange in Europe

Nils Herger
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Nils Herger: Study Center Gerzensee, Switzerland.

No 1607, Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper examines several versions of the (covered and uncovered) interest parity condition that arguably held as regards the investment demand for bills of exchange during the classical gold standard (1880 - 1914). Contemporaneous guide books about the foreign exchanges report that close connections between the exchange and interest (or discount) rates arose mainly between London and the major financial centres on the European continent. As implied by the interest parity condition, and in particular when future exchange rate movements were covered via a suitable long-bill transaction, weekly data suggest indeed that between Paris, Amsterdam, Berlin and London, the return from discounting bills of exchange in the local money market was roughly equivalent to the (exchange rate adjusted) return from investing in foreign bills.

Keywords: Covered interest parity condition; Exchange rates; Gold standard; Uncovered interest parity condition (search for similar items in EconPapers)
JEL-codes: F31 N13 N23 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-his, nep-mon and nep-sog
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:1607

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