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Interest parity conditions during the classical gold standard (1880 -1914) - Evidence from the investment demand for bills of exchange in Europe

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  • Nils Herger

    (Study Center Gerzensee, Switzerland.)

Abstract

This paper examines several versions of the (covered and uncovered) interest parity condition that arguably held as regards the investment demand for bills of exchange during the classical gold standard (1880 - 1914). Contemporaneous guide books about the foreign exchanges report that close connections between the exchange and interest (or discount) rates arose mainly between London and the major financial centres on the European continent. As implied by the interest parity condition, and in particular when future exchange rate movements were covered via a suitable long-bill transaction, weekly data suggest indeed that between Paris, Amsterdam, Berlin and London, the return from discounting bills of exchange in the local money market was roughly equivalent to the (exchange rate adjusted) return from investing in foreign bills.

Suggested Citation

  • Nils Herger, 2016. "Interest parity conditions during the classical gold standard (1880 -1914) - Evidence from the investment demand for bills of exchange in Europe," Discussion Papers 1607, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:1607
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    References listed on IDEAS

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    More about this item

    Keywords

    Covered interest parity condition; Exchange rates; Gold standard; Uncovered interest parity condition;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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