Long-Run Purchasing Power Parity and the Dollar-Sterling Exchange Rate in the 1920's

Mark Taylor

No 1990/118, IMF Working Papers from International Monetary Fund

Abstract: This paper replies to Ahking’s (1990) re-examination of Taylor and McMahon’s (1988) analysis of long-run purchasing power parity in the 1920s. We demonstrate that Ahking’s conclusions are only partially correct and reestablish our conclusion that, a form of long-run purchasing-power parity did in fact hold for dollar-sterling during this period. The new results are also employed to gauge the degree of overvaluation of sterling relative to the imposed prewar parity of $4.86 upon its return to gold and for 12 months afterwards.

Keywords: WP; null hypothesis; time series; U.K. price series; U.K. wholesale price index; trend term; unit root test statistic; test statistics; Exchange rates; Purchasing power parity; Wholesale price indexes (search for similar items in EconPapers)
Pages: 25
Date: 1990-12-01
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Citations: View citations in EconPapers (1)

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