Exchange rate regimes and prices: The cases of Italy, Spain and the United Kingdom (1874-1998)

María Gadea (), Monia Ben Kaabia and Marcela Sabate ()

Journal of International Financial Markets, Institutions and Money, 2009, vol. 19, issue 3, 477-489

Abstract: This paper studies the relationship among Italian, Spanish and United Kingdom prices over the period 1874-1998, for most of which the currencies of these three countries maintained a floating exchange rate regime. By using cointegration techniques with broken linear trends, we find a single vector for the period 1874-1935 and two vectors and, consequently, a single common trend for the period 1940-1998. Therefore, this paper provides new evidence of no long-run monetary independence under floating regimes. Furthermore, the price differential dynamics captured by deterministic trends in the period 1940-1998, as well as agreeing with the evidence of long-run transmission of interest rates in the floating post-Bretton Woods era, fit in perfectly with the new de facto taxonomies on exchange rates.

Keywords: Prices; Exchange; rate; regimes; Cointegration; Permanent-transitory; components (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:19:y:2009:i:3:p:477-489

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