Back to gold: Sterling in 1925
- Expectations of Sterling returning to Gold have been disregarded in empirical work on the US dollar – Sterling exchange rate in the early 1920s. We incorporate such considerations in a PPP model of the exchange rate, letting the probability of a return to gold follow a logistic function. We draw several conclusions: (i) the PPP model works well from spring 1919 to spring 1925; (ii) wholesale prices outperform consumer prices; (iii) allowing for a return to gold leads to a higher speed of adjustment of the exchange rate to PPP; (iv) interest rate differentials and the relative monetary base are crucial determinants of the expected return to gold; (v) the probability of a return to Gold peaked at about 72% in late 1924 and but fell to about 60% in early 1925; and (vi) our preferred model does not support the Keynes’ view that Sterling was overvalued after the return to gold.
| Author: | Stefan Gerlach, Peter Kugler |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-382852 |
| URL: | http://ssrn.com/abstract=2663345 |
| DOI: | https://doi.org/10.2139/ssrn.2663345 |
| Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 515 |
| Series (Serial Number): | CFS working paper series (515) |
| Publisher: | Center for Financial Studies |
| Place of publication: | Frankfurt, M. |
| Document Type: | Working Paper |
| Language: | English |
| Date of Publication (online): | 2015/09/22 |
| Date of first Publication: | 2015/09/22 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2015/10/08 |
| Tag: | Gold Standard; PPP; Sterling; exchange rate; expectations |
| Issue: | July 30, 2015 |
| Page Number: | 24 |
| HeBIS-PPN: | 36677784X |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
