Long-Run Purchasing Power Parity and the Dollar-Sterling Exchange Rate in the 1920s
25 Pages Posted: 15 Feb 2006
Date Written: December 1990
This paper replies to Ahking`s (1990) re-examination of Taylor and McMahon`s (1988) analysis of long-run purchasing power parity in the 1920s. We demonstrate that Ahking`s conclusions are only partially correct and reestablish our conclusion that a form of long-run purchasing-power parity did in fact hold for dollar-sterling during this period. The new results are also employed to gauge the degree of overvaluation of sterling relative to the imposed prewar parity of $4.86 upon its return to gold and for 12 months afterwards.
JEL Classification: 044, 431, 432
Suggested Citation: Suggested Citation