IDEAS home Printed from https://ideas.repec.org/a/spr/cliomt/v11y2017i3d10.1007_s11698-016-0146-5.html
   My bibliography  Save this article

Domestic exchange rate determination in Renaissance Florence

Author

Listed:
  • G. Geoffrey Booth

    (Michigan State University)

  • Sanders S. Chang

    (University of Dayton)

Abstract

We explore the price-setting protocol used by the money-changers guild, the Arte del Cambio, to set the exchange rate between domestic gold and silver coins in Renaissance Florence, a precursor in purpose and set-up to the contemporary system of posting interest rates. We show that the protocol is evolutionarily stable and designed to converge to the efficient price, which had important implications to the political economy of Florence and the stability of its monetary system. We also show that the predicted dynamics of convergence are consistent with surviving exchange rates from 1389 to 1432, thereby linking the empirical properties of the historical data to the institutional features of the guild that generated them.

Suggested Citation

  • G. Geoffrey Booth & Sanders S. Chang, 2017. "Domestic exchange rate determination in Renaissance Florence," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 11(3), pages 405-445, September.
    • Handle: RePEc:spr:cliomt:v:11:y:2017:i:3:d:10.1007_s11698-016-0146-5
    DOI: 10.1007/s11698-016-0146-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11698-016-0146-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11698-016-0146-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Greif, Avner & Laitin, David D., 2004. "A Theory of Endogenous Institutional Change," American Political Science Review, Cambridge University Press, vol. 98(4), pages 633-652, November.
    2. Ernst Juerg Weber, 2009. "Pre-industrial Bimetallism: The Index Coin Hypothesis," Economics Discussion / Working Papers 09-12, The University of Western Australia, Department of Economics.
    3. R.J. Aumann & S. Hart (ed.), 2002. "Handbook of Game Theory with Economic Applications," Handbook of Game Theory with Economic Applications, Elsevier, edition 1, volume 3, number 3.
    4. Greif,Avner, 2006. "Institutions and the Path to the Modern Economy," Cambridge Books, Cambridge University Press, number 9780521480444.
    5. Daniel Friedman, 1998. "On economic applications of evolutionary game theory," Journal of Evolutionary Economics, Springer, vol. 8(1), pages 15-43.
    6. Pierre-Cyrille Hautcoeur & Angelo Riva, 2012. "The Paris financial market in the nineteenth century: complementarities and competition in microstructures," Economic History Review, Economic History Society, vol. 65(4), pages 1326-1353, November.
    7. Tai-kuang Ho & Cheng-chung Lai & Joshua Jr-shiang Gau, 2013. "Equilibrium and adjustment of exchange rates in the Chinese silver standard economy, 1928-1935," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 7(1), pages 87-98, January.
    8. Riva, Angelo & White, Eugene N., 2011. "Danger on the exchange: How counterparty risk was managed on the Paris exchange in the nineteenth century," Explorations in Economic History, Elsevier, vol. 48(4), pages 478-493.
    9. Kalai, Ehud & Lehrer, Ehud, 1993. "Rational Learning Leads to Nash Equilibrium," Econometrica, Econometric Society, vol. 61(5), pages 1019-1045, September.
    10. Péter Földvári & Bas van Leeuwen, 2011. "What can price volatility tell us about market efficiency? Conditional heteroscedasticity in historical commodity price series," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 5(2), pages 165-186, June.
    11. Shiller, Robert J, 1981. "The Use of Volatility Measures in Assessing Market Efficiency," Journal of Finance, American Finance Association, vol. 36(2), pages 291-304, May.
    12. Han N. Ozsoylev & Johan Walden & M. Deniz Yavuz & Recep Bildik, 2014. "Investor Networks in the Stock Market," The Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1323-1366.
    13. Silver, Morris, 1983. "Karl Polanyi and Markets in the Ancient Near East: The Challenge of the Evidence," The Journal of Economic History, Cambridge University Press, vol. 43(4), pages 795-829, December.
    14. Politis, D. N. & Romano, Joseph P. & Wolf, Michael, 1997. "Subsampling for heteroskedastic time series," Journal of Econometrics, Elsevier, vol. 81(2), pages 281-317, December.
    15. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    16. ., 2012. "Privatization and Structural Reforms," Chapters, in: Regulatory Reform of Public Utilities, chapter 13, pages 203-220, Edward Elgar Publishing.
    17. Caroline Fohlin & Steffen Reinhold, 2010. "Common stock returns in the pre-WWI Berlin Stock Exchange," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 4(1), pages 75-96, January.
    18. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    19. Bing Han & Liyan Yang, 2013. "Social Networks, Information Acquisition, and Asset Prices," Management Science, INFORMS, vol. 59(6), pages 1444-1457, June.
    20. Kenneth Rogoff, 2008. "Comment on "Exchange Rate Models Are Not As Bad As You Think"," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 443-452, National Bureau of Economic Research, Inc.
    21. Annaert, Jan & Mensah, Lord, 2014. "Cross-sectional predictability of stock returns, evidence from the 19th century Brussels Stock Exchange (1873–1914)," Explorations in Economic History, Elsevier, vol. 52(C), pages 22-43.
    22. ., 2012. "Private Sector Involvement," Chapters, in: Regulatory Reform of Public Utilities, chapter 14, pages 221-236, Edward Elgar Publishing.
    23. Harrison Hong & Jeremy C. Stein, 2007. "Disagreement and the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 109-128, Spring.
    24. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    25. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
    26. Amit Seru & Tyler Shumway & Noah Stoffman, 2010. "Learning by Trading," The Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 705-739, February.
    27. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2005. "Evidence on the speed of convergence to market efficiency," Journal of Financial Economics, Elsevier, vol. 76(2), pages 271-292, May.
    28. Neal, Larry & Davis, Lance, 2006. "The evolution of the structure and performance of the London Stock Exchange in the first global financial market, 1812–1914," European Review of Economic History, Cambridge University Press, vol. 10(3), pages 279-300, December.
    29. Friedman, Daniel, 1991. "Evolutionary Games in Economics," Econometrica, Econometric Society, vol. 59(3), pages 637-666, May.
    30. ., 2012. "Public and Private Provision," Chapters, in: Regulatory Reform of Public Utilities, chapter 2, pages 25-46, Edward Elgar Publishing.
    31. Nogues-Marco, Pilar, 2013. "Competing Bimetallic Ratios: Amsterdam, London, and Bullion Arbitrage in Mid-Eighteenth Century," The Journal of Economic History, Cambridge University Press, vol. 73(2), pages 445-476, June.
    32. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    33. Booth, G. Geoffrey & Gurun, Umit G., 2008. "Volatility clustering and the bid-ask spread: Exchange rate behavior in early Renaissance Florence," Journal of Empirical Finance, Elsevier, vol. 15(1), pages 131-144, January.
    34. Weber, Ernst Juerg, 1996. ""Imaginary" or "Real" Moneys of Account in Medieval Europe? An Econometric Analysis of the Basle Pound, 1365-1429," Explorations in Economic History, Elsevier, vol. 33(4), pages 479-495, October.
    35. Marco, Pilar Nogués & Malle-Sabouret, Camila Vam, 2007. "East India bonds, 1718–1763: early exotic derivatives and London market efficiency," European Review of Economic History, Cambridge University Press, vol. 11(3), pages 367-394, December.
    36. Härdle, Wolfgang Karl & López-Cabrera, Brenda & Ritter, Matthias, 2012. "Forecast based pricing of weather derivatives," SFB 649 Discussion Papers 2012-027, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    37. Peter Koudijs, 2016. "The Boats That Did Not Sail: Asset Price Volatility in a Natural Experiment," Journal of Finance, American Finance Association, vol. 71(3), pages 1185-1226, June.
    38. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    39. Garbade, Kenneth D & Silber, William L, 1978. "Technology, Communication and the Performance of Financial Markets: 1840-1975," Journal of Finance, American Finance Association, vol. 33(3), pages 819-832, June.
    40. Booth, G. Geoffrey & Gurun, Umit G. & Zhang, Harold, 2014. "Financial networks and trading in bond markets," Journal of Financial Markets, Elsevier, vol. 18(C), pages 126-157.
    41. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shi, Leilei & Wang, Binghong & Guo, Xinshuai & Li, Honggang, 2021. "A price dynamic equilibrium model with trading volume weights based on a price-volume probability wave differential equation," International Review of Financial Analysis, Elsevier, vol. 74(C).
    2. Committee, Nobel Prize, 2013. "Understanding Asset Prices," Nobel Prize in Economics documents 2013-1, Nobel Prize Committee.
    3. Zaremba, Adam & Cakici, Nusret & Bianchi, Robert J. & Long, Huaigang, 2023. "Interest rate changes and the cross-section of global equity returns," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    4. Detlef Seese & Christof Weinhardt & Frank Schlottmann (ed.), 2008. "Handbook on Information Technology in Finance," International Handbooks on Information Systems, Springer, number 978-3-540-49487-4, November.
    5. Lim, Kian-Ping & Kim, Jae H., 2011. "Trade openness and the informational efficiency of emerging stock markets," Economic Modelling, Elsevier, vol. 28(5), pages 2228-2238, September.
    6. Schwert, G. William, 2003. "Anomalies and market efficiency," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 15, pages 939-974, Elsevier.
    7. Orhan ERDEM & Evren ARIK & Serkan YÜKSEL, 2014. "Trading Puzzle, Puzzling Trade," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 29(345), pages 83-102.
    8. Md Lutfur Rahman & Mahbub Khan & Samuel A. Vigne & Gazi Salah Uddin, 2021. "Equity return predictability, its determinants, and profitable trading strategies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(1), pages 162-186, January.
    9. Bradley Jones, 2015. "Asset Bubbles: Re-thinking Policy for the Age of Asset Management," IMF Working Papers 2015/027, International Monetary Fund.
    10. Sandrine Jacob Leal, 2015. "Fundamentalists, chartists and asset pricing anomalies," Quantitative Finance, Taylor & Francis Journals, vol. 15(11), pages 1837-1850, November.
    11. Didier SORNETTE, 2014. "Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based Models," Swiss Finance Institute Research Paper Series 14-25, Swiss Finance Institute.
    12. Jovanovic, Franck & Schinckus, Christophe, 2017. "Econophysics and Financial Economics: An Emerging Dialogue," OUP Catalogue, Oxford University Press, number 9780190205034.
    13. Sonntag, Dominik, 2018. "Die Theorie der fairen geometrischen Rendite [The Theory of Fair Geometric Returns]," MPRA Paper 87082, University Library of Munich, Germany.
    14. Pouget, Sébastien & Villeneuve, Stéphane, 2012. "A Mind is a Terrible Thing to Change: Confirmation Bias in Financial Markets," TSE Working Papers 12-306, Toulouse School of Economics (TSE), revised Aug 2016.
    15. Au, Pak Hung, 2016. "Price reaction and disagreement over public signal," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 81-106.
    16. D. Sornette, 2014. "Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based models," Papers 1404.0243, arXiv.org.
    17. Bender, Svetlana & Choi, James J. & Dyson, Danielle & Robertson, Adriana Z., 2022. "Millionaires speak: What drives their personal investment decisions?," Journal of Financial Economics, Elsevier, vol. 146(1), pages 305-330.
    18. Sandrine Jacob Leal, 2015. "Fundamentalists, Chartists and Asset pricing anomalies," Post-Print hal-01508002, HAL.
    19. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128, Elsevier.
    20. Keunbae Ahn, 2021. "Predictable Fluctuations in the Cross-Section and Time-Series of Asset Prices," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2021, January-A.

    More about this item

    Keywords

    Exchange rates; Money changing; Evolutionary stability; Renaissance Florence; LIBOR;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • P12 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Enterprises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:cliomt:v:11:y:2017:i:3:d:10.1007_s11698-016-0146-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.