NOMINAL AND REAL EXCHANGE RATES AND PURCHASING POWER PARITY DURING THE GUATEMALAN FLOAT, 1897-1922

Thomas E. Schweigert ()
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Thomas E. Schweigert: Department of Economics, University of Wisconsin

Journal of Economic Development, 2002, vol. 27, issue 2, 127-142

Abstract: From around 1897 until 1924 the Guatemalan peso was a fiat currency whose exchange value floated against the U.S. dollar. The behavior of the nominal exchange rate is consistent with purchasing power parity. The hypothesis that the elasticities of the exchange rate with respect to the domestic money supply and foreign price level are plus 1 and minus 1 cannot be rejected. The exchange rate, money supply and foreign price level each appear to follow a random walk with drift but are cointegrated, implying a stationary real exchange rate. The behavior of the real exchange rate is consistent with fundamentals. Terms of trade improvements and years of good coffee harvests are associated with real appreciation. The WWI period, which likely diminished or reversed long term capital inflows, is associated with real depreciation.

Keywords: Purchasing Power Parity; Exchange Rates; Cointegration (search for similar items in EconPapers)
JEL-codes: F3 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (1)

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