CRIF Working Paper No. 04001

Real Exchange Rates Over the Past Two Centuries: 

Title: The Behavior of Money and Other Economic Variables: Two Natural Experiments

Author: James R. Lothian (Fordham University) and Cornelia H. McCarthy (Fordham University))

Contact: lothian@fordham.edu, comccarthy@forhdam.edu 

Keywords: Money Behavior, Inflation

JEL Classification: E5, F3

Abstract: Every once in a great while, history provides us with a natural experiment, an episode in which a major change in a key economic variable occurs that has no direct relation to the contemporaneous behavior of the variables that theory suggests it ought to effect.

     A classic example was the currency reform during the U.S. Civil War by the Confederacy in spring 1864. A second was provided by the massive inflow of specie from the New World to Spain in the sixteenth century. In the first of these examples, a rapidly growing money stock suddenly fell and a decline in the price level followed. In the second, a century-long upward movement in price levels occurred throughout most of Europe. The question that researchers addressed in both instances had to do with the links between the monetary changes and the price behavior that followed (Lerner, 1956; Hamilton, 1934).

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