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Did Purchasing Power Parity Hold in Medieval Europe?

Adrian Bell, Chris Brooks and Tony K. Moore ()
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Tony K. Moore: ICMA Centre, Henley Business School, University of Reading

No icma-dp2014-01, ICMA Centre Discussion Papers in Finance from Henley Business School, Reading University

Abstract: This paper employs a unique, hand-collected dataset of exchange rates for five major currencies (the lira of Barcelona, the pound sterling of England, the pond groot of Flanders, the florin of Florence and the livre tournois of France) to consider whether the law of one price and purchasing power parity held in Europe during the late fourteenth and early fifteenth centuries. Using single series and panel unit root and stationarity tests on ten real exchange rates between 1383 and 1411, we show that the parity relationship held for the pound sterling and some of the Florentine florin series individually and for almost all of the groups that we investigate. Our findings add to the weight of evidence that trading and arbitrage activities stopped currencies deviating permanently from fair values and that the medieval financial markets were well functioning. This supports the results reported in other recent studies which indicate that many elements of modern economic theories can be traced back over 700 years in Europe.

Keywords: aw of one price; purchasing power parity; medieval markets; historical finance (search for similar items in EconPapers)
JEL-codes: F31 N13 N23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his and nep-opm
Date: 2014-01
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Journal Article: Did Purchasing Power Parity Hold in Medieval Europe? (2017) Downloads
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