In this paper, I investigate international financial market behavior over the past three centurie... more In this paper, I investigate international financial market behavior over the past three centuries and compare the degree of integration across various important subperiods. This is the first time that so temporally extensive a comparison has been attempted. What the paper shows is that integrated markets of one sort or another have been the rule rather than exception over this exceedingly long span of years. The integration process, however, has been a discontinuous one. It has been interrupted by major wars and their after effects, and in the case of the interwar years by the severe economic shocks of that era and governments' reactions to them. In each instance, however, integration began anew. It did so, moreover, quite spontaneously. It was not something either planned, or otherwise orchestrated from on high. In finance as elsewhere, the prospect of gains from trade exerts a powerful force and that evidently was sufficient to keep the integration process going through the m...
ABSTRACT Using random simulations with artificial data with identical sample characteristics to t... more ABSTRACT Using random simulations with artificial data with identical sample characteristics to the long-sample exchange rate data employed by Lothian and Taylor(Lothian, J.R. and Taylor, M.P.(1996). The recent float from the perspective of the past two centuries. Journal of Political Economy 104, 488-509.), we show that standard unit-root tests have extremely low power over sample sizes corresponding to the recent float. The probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans.
The full text of Federal Reserve Bank of Atlanta working papers, including revised versions, is a... more The full text of Federal Reserve Bank of Atlanta working papers, including revised versions, is available on the Atlanta Fed’s Web site at
November 17, 2006:A20) compared the behavior of money supply, nominal income and stock prices in ... more November 17, 2006:A20) compared the behavior of money supply, nominal income and stock prices in the United States during the course of the 1920s and early 1930s with behavior in two other historical episodes, Japan in the 1980s and early 1990s and the United States in the 1990s and early 2000s. The three episodes, he argued, provided a natural experiment to test his and Anna J. Schwartz’s explanation of the Great Depression of the 1930s. I use similar data for the U.S. recession that began in the fourth quarter of 2007 as a fourth such natural experiment. What makes this episode particularly interesting are the continuing comparisons between it and the Great Depression that have been made as events unfolded. The results are clear-cut. In the recent recession, like the U.S recessions at the start of this century and the Japanese recession in the 1990s, there were no severe monetary shocks of the sort experienced in the 1930s. This recession, again like the other two, has been very m...
Abstract: What the paper shows is that integrated markets of have been the rule rather than excep... more Abstract: What the paper shows is that integrated markets of have been the rule rather than exception over long span of years investigated here. This integration process, however, has been a discontinuous one. It was interrupted by major wars and by the severe economic shocks of the interwar years. Each time that happened, however, it began anew. It did so, moreover, quite spontaneously. In finance, as elsewhere, the prospect of gains from trade exerts a powerful force, one that in this instance was sufficient to keep the integration process going through the many adversities of these past three centuries. 1The current period of increased financial integration is not a first. Economic historians who have studied the subject point to two earlier periods during which international integration apparently also ran high. One was under the classical gold standard – the forty-year or so period running from the mid-1870s to 1914 (see, e.g., Jackson and Lothian, 1993; Lothian, 2000). Another...
IN THIS PAPER WE STUDY THE BEHAVIOR OF THE REAL EXCHANGE RATE OF THREE AMERICAN CURRENCIES RELATI... more IN THIS PAPER WE STUDY THE BEHAVIOR OF THE REAL EXCHANGE RATE OF THREE AMERICAN CURRENCIES RELATIVE TO THE U.S. DOLLAR: THE CANADIAN DOLLAR, THE MEXICAN PESO ANS THE PANAMANIAN BALBOA. OUR PRINCIPAL OBJECTIVE IN DOING SO IS TO INVESTIGATE THE EFFECTS OF ALTERNATIVE EXCHANGE-RATE REGIMES, INCLUDING CURRENCY UNION, ON REAL EXCHANGE RATE BEHAVIOR. IN ECAH OF THESE THREE CASES WE FIND AT LEAST SOME EVIDENCE SUPPORTING THE PURCHASING POWER PARITY HYPOTHESIS IN THE DATA THAT WE EXAMINE. OUR SECOND SET OF CONCLUSIONS CONCERNS THE CRITICISMS RECENTLY DIRECTED AT THE EMPIRICAL EXCHANGE-RATE LITERATURE. AN IMPORTANT CRITERION UNDERLYING OUR CHOICE OF COUNTRIES WAS DIVERSITY OF EXPERIENCE WITH REGARD TO THE EXCHANGE-RATE REGIME. THE OBJECTIVE WAS TO DESIGN AN EXPERIMENT IN WHICH MEANINGFUL COMPARISONS OF BEHAVIOR ACROSS REGIMES WOULD BE POSSIBLE.
Page 1. This PDF is a selection from an out-of-print volume from the National Bureau of Economic ... more Page 1. This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz Volume Author/Editor: Michael D. Bordo, editor ...
This paper re-examines real exchange rate behavior of OECD currencies under the current float usi... more This paper re-examines real exchange rate behavior of OECD currencies under the current float using the more extensive data set that an additional decade's worth of experience has made available. What emerges is a new set of stylized facts, which suggest that the problems of the current float were not, as commonly believed, generic to that system but in fact rather specific, being largely confined to one sub-period - the early and mid-1980s - and one currency - the US dollar. This dollar behavior ranks as one of the important puzzles of the past 25 years.
ABSTRACT In this paper we examine the stability of the real exchange rate and the macroeconomic e... more ABSTRACT In this paper we examine the stability of the real exchange rate and the macroeconomic effects of alternative exchange-rate regimes, including currency union, on real exchange-rate behaviour. We focus on the Irish punt in order to exploit its diversity of experience over different nominal exchange rate regimes. We make both temporal and cross-country comparisons of real-exchange-rate stability for the Irish punt with sterling, the US dollar and the German mark. We reach two conclusions on the basis of our results. The first is that for Ireland, as for most other countries, purchasing power parity provides a reasonably good description of actual exchange rate behaviour over the long run. Our second principal conclusion concerns regime effects. Currency union appears to matter. The real exchange rates we analyse are unambiguously less variable under currency union than under alternative exchange-rate systems. Otherwise, however, we find no clear-cut differences in behaviour across regimes.
In this paper we study the behavior of the real exchange rate of three North American currencies ... more In this paper we study the behavior of the real exchange rate of three North American currencies vis-a-vis the U.S. dollar: the Canadian dollar the Mexican peso, and the Panamanian Balboa. Our principal object is to design an experiment in which meaningful comparisons of behavior across regimes would be possible. In the main we were unable to find any. The allegation of problems created due to aggregating data across regimes therefore receives no support at all in these data. A second criterion for choosing the countries in our sample was differences in level of economic development. The object here was to provide ample leeway for real variables to operate. For Mexico such factors do not appear to matter. For Panama they might be of some importance, but a modified form of PPP nevertheless continues to perform well.
In this paper, I investigate international financial market behavior over the past three centurie... more In this paper, I investigate international financial market behavior over the past three centuries and compare the degree of integration across various important subperiods. This is the first time that so temporally extensive a comparison has been attempted. What the paper shows is that integrated markets of one sort or another have been the rule rather than exception over this exceedingly long span of years. The integration process, however, has been a discontinuous one. It has been interrupted by major wars and their after effects, and in the case of the interwar years by the severe economic shocks of that era and governments' reactions to them. In each instance, however, integration began anew. It did so, moreover, quite spontaneously. It was not something either planned, or otherwise orchestrated from on high. In finance as elsewhere, the prospect of gains from trade exerts a powerful force and that evidently was sufficient to keep the integration process going through the m...
ABSTRACT Using random simulations with artificial data with identical sample characteristics to t... more ABSTRACT Using random simulations with artificial data with identical sample characteristics to the long-sample exchange rate data employed by Lothian and Taylor(Lothian, J.R. and Taylor, M.P.(1996). The recent float from the perspective of the past two centuries. Journal of Political Economy 104, 488-509.), we show that standard unit-root tests have extremely low power over sample sizes corresponding to the recent float. The probability of rejecting the null hypothesis when it is false is extremely low with 20 years or even 50 years of data and only reaches an acceptable level over much longer spans.
The full text of Federal Reserve Bank of Atlanta working papers, including revised versions, is a... more The full text of Federal Reserve Bank of Atlanta working papers, including revised versions, is available on the Atlanta Fed’s Web site at
November 17, 2006:A20) compared the behavior of money supply, nominal income and stock prices in ... more November 17, 2006:A20) compared the behavior of money supply, nominal income and stock prices in the United States during the course of the 1920s and early 1930s with behavior in two other historical episodes, Japan in the 1980s and early 1990s and the United States in the 1990s and early 2000s. The three episodes, he argued, provided a natural experiment to test his and Anna J. Schwartz’s explanation of the Great Depression of the 1930s. I use similar data for the U.S. recession that began in the fourth quarter of 2007 as a fourth such natural experiment. What makes this episode particularly interesting are the continuing comparisons between it and the Great Depression that have been made as events unfolded. The results are clear-cut. In the recent recession, like the U.S recessions at the start of this century and the Japanese recession in the 1990s, there were no severe monetary shocks of the sort experienced in the 1930s. This recession, again like the other two, has been very m...
Abstract: What the paper shows is that integrated markets of have been the rule rather than excep... more Abstract: What the paper shows is that integrated markets of have been the rule rather than exception over long span of years investigated here. This integration process, however, has been a discontinuous one. It was interrupted by major wars and by the severe economic shocks of the interwar years. Each time that happened, however, it began anew. It did so, moreover, quite spontaneously. In finance, as elsewhere, the prospect of gains from trade exerts a powerful force, one that in this instance was sufficient to keep the integration process going through the many adversities of these past three centuries. 1The current period of increased financial integration is not a first. Economic historians who have studied the subject point to two earlier periods during which international integration apparently also ran high. One was under the classical gold standard – the forty-year or so period running from the mid-1870s to 1914 (see, e.g., Jackson and Lothian, 1993; Lothian, 2000). Another...
IN THIS PAPER WE STUDY THE BEHAVIOR OF THE REAL EXCHANGE RATE OF THREE AMERICAN CURRENCIES RELATI... more IN THIS PAPER WE STUDY THE BEHAVIOR OF THE REAL EXCHANGE RATE OF THREE AMERICAN CURRENCIES RELATIVE TO THE U.S. DOLLAR: THE CANADIAN DOLLAR, THE MEXICAN PESO ANS THE PANAMANIAN BALBOA. OUR PRINCIPAL OBJECTIVE IN DOING SO IS TO INVESTIGATE THE EFFECTS OF ALTERNATIVE EXCHANGE-RATE REGIMES, INCLUDING CURRENCY UNION, ON REAL EXCHANGE RATE BEHAVIOR. IN ECAH OF THESE THREE CASES WE FIND AT LEAST SOME EVIDENCE SUPPORTING THE PURCHASING POWER PARITY HYPOTHESIS IN THE DATA THAT WE EXAMINE. OUR SECOND SET OF CONCLUSIONS CONCERNS THE CRITICISMS RECENTLY DIRECTED AT THE EMPIRICAL EXCHANGE-RATE LITERATURE. AN IMPORTANT CRITERION UNDERLYING OUR CHOICE OF COUNTRIES WAS DIVERSITY OF EXPERIENCE WITH REGARD TO THE EXCHANGE-RATE REGIME. THE OBJECTIVE WAS TO DESIGN AN EXPERIMENT IN WHICH MEANINGFUL COMPARISONS OF BEHAVIOR ACROSS REGIMES WOULD BE POSSIBLE.
Page 1. This PDF is a selection from an out-of-print volume from the National Bureau of Economic ... more Page 1. This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz Volume Author/Editor: Michael D. Bordo, editor ...
This paper re-examines real exchange rate behavior of OECD currencies under the current float usi... more This paper re-examines real exchange rate behavior of OECD currencies under the current float using the more extensive data set that an additional decade's worth of experience has made available. What emerges is a new set of stylized facts, which suggest that the problems of the current float were not, as commonly believed, generic to that system but in fact rather specific, being largely confined to one sub-period - the early and mid-1980s - and one currency - the US dollar. This dollar behavior ranks as one of the important puzzles of the past 25 years.
ABSTRACT In this paper we examine the stability of the real exchange rate and the macroeconomic e... more ABSTRACT In this paper we examine the stability of the real exchange rate and the macroeconomic effects of alternative exchange-rate regimes, including currency union, on real exchange-rate behaviour. We focus on the Irish punt in order to exploit its diversity of experience over different nominal exchange rate regimes. We make both temporal and cross-country comparisons of real-exchange-rate stability for the Irish punt with sterling, the US dollar and the German mark. We reach two conclusions on the basis of our results. The first is that for Ireland, as for most other countries, purchasing power parity provides a reasonably good description of actual exchange rate behaviour over the long run. Our second principal conclusion concerns regime effects. Currency union appears to matter. The real exchange rates we analyse are unambiguously less variable under currency union than under alternative exchange-rate systems. Otherwise, however, we find no clear-cut differences in behaviour across regimes.
In this paper we study the behavior of the real exchange rate of three North American currencies ... more In this paper we study the behavior of the real exchange rate of three North American currencies vis-a-vis the U.S. dollar: the Canadian dollar the Mexican peso, and the Panamanian Balboa. Our principal object is to design an experiment in which meaningful comparisons of behavior across regimes would be possible. In the main we were unable to find any. The allegation of problems created due to aggregating data across regimes therefore receives no support at all in these data. A second criterion for choosing the countries in our sample was differences in level of economic development. The object here was to provide ample leeway for real variables to operate. For Mexico such factors do not appear to matter. For Panama they might be of some importance, but a modified form of PPP nevertheless continues to perform well.
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Papers by James Lothian