Did Purchasing Power Parity Hold in Medieval Europe?

28 Pages Posted: 4 Oct 2017

See all articles by Adrian R. Bell

Adrian R. Bell

University of Reading - ICMA Centre

Chris Brooks

University of Reading - ICMA Centre

Tony K. Moore

University of Reading - ICMA Centre

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

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 and cointegration analysis on 10 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 real exchange rates deviating permanently from fair values. This research extends the results reported in other studies back more than 600 years.

Suggested Citation

Bell, Adrian R. and Brooks, Chris and Moore, Tony K., Did Purchasing Power Parity Hold in Medieval Europe? (December 2017). The Manchester School, Vol. 85, Issue 6, pp. 682-709, 2017. Available at SSRN: https://ssrn.com/abstract=3047546 or http://dx.doi.org/10.1111/manc.12167

Adrian R. Bell (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Chris Brooks

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Tony K. Moore

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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