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Nominal And Real Exchange Rates And Purchasing Power Parity During The Guatemalan Float, 1897-1922

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  • Thomas E. Schweigert

    (Department of Economics, University of Wisconsin)

Abstract

From around 1897 until 1924 the Guatemalan peso was a fiat currency whose exchange value floated against the U.S. dollar. The behavior of the nominal exchange rate is consistent with purchasing power parity. The hypothesis that the elasticities of the exchange rate with respect to the domestic money supply and foreign price level are plus 1 and minus 1 cannot be rejected. The exchange rate, money supply and foreign price level each appear to follow a random walk with drift but are cointegrated, implying a stationary real exchange rate. The behavior of the real exchange rate is consistent with fundamentals. Terms of trade improvements and years of good coffee harvests are associated with real appreciation. The WWI period, which likely diminished or reversed long term capital inflows, is associated with real depreciation.

Suggested Citation

  • Thomas E. Schweigert, 2002. "Nominal And Real Exchange Rates And Purchasing Power Parity During The Guatemalan Float, 1897-1922," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 127-142, December.
    • Handle: RePEc:jed:journl:v:27:y:2002:i:2:p:127-142
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    More about this item

    Keywords

    Purchasing Power Parity; Exchange Rates; Cointegration;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance

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