An empirical note on relative monetary expansion and depreciation: The case of the Lira-Swiss franc exchange rate (February 1973–December 1976)

This note presents an empirical test of fluctuations in the spread between the lira Swiss franc exchange rate for bank notes and cable transfers in Zurich. This spread is trendless, and since the market for Italian bank notes in Zurich is relatively small, it is virtually free from reverse causation in relation to relative monetary expansion. The tests show that relative monetary expansion is the main determinant of fluctuations in the spread.