Exchange rate regimes and prices: The cases of Italy,Spain and the United Kingdom (1874–1998) |
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Authors: | María Dolores Gadea Monia Ben Kaabia Marcela Sabaté |
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Affiliation: | 1. Department of Economics, The Williams School, Washington and Lee University, Lexington, VA, USA;2. CESifo, Munich, Germany;3. Central European University, Labor Project, Budapest, Hungary;1. CATT, University of Pau, France;2. ESC, Business School of Tunis, Tunisia;3. IFHE-IBS Hyderabad, India;4. COMSATS Institute of Information Technology, Lahore, Pakistan, IPAG Business School, Paris, France |
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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. |
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