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Floating Exchange Rates in Peru, 1950-54

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  • Richard K. Lyons

Abstract

I test three potentially complementary models in an effort to capture the fundamentals that underlaid the market's determination of Peru's floating exchange rate through the period 1950-54: the first is an expectational purchasing power parity (PPP) model which maintains that asset market forces were driving the exchange rate to its perceived PPP level; the second is a flexible-price monetary model; and the third is a model along the lines described by Tsiang (1957) which emphasizes world prices for Peruvian exports as a fundamental determinant. I find that the expectational PPP model not only dominates the others, but also fits quite well.

Suggested Citation

  • Richard K. Lyons, 1991. "Floating Exchange Rates in Peru, 1950-54," NBER Working Papers 3775, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3775
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    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Edwards, Sebastian, 1983. "Floating Exchange Rates in Less-Developed Countries: A Monetary Analysis of the Peruvian Experience, 1950-54," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 73-81, February.
    3. Rudiger Dornbusch, 1979. "Monetary Policy Under Exchange Rate Flexibility," NBER Working Papers 0311, National Bureau of Economic Research, Inc.
    4. Branson, William H. & Katseli-Papaefstratiou, Louka T., 1980. "Income instability, terms of trade, and the choice of exchange rate regime," Journal of Development Economics, Elsevier, vol. 7(1), pages 49-69, February.
    5. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July.
    6. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
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