Back to Gold: Sterling in 1925

Kugler, Peter and Gerlach, Stefan. (2015) Back to Gold: Sterling in 1925. CEPR Discussion Paper, (10761).

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Official URL: http://edoc.unibas.ch/42124/

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Expectations of Sterling returning to Gold have been disregarded in empirical work on the US dollar � Sterling exchange rate in the early 1920s. We incorporate such considerations in a PPP model of the exchange rate, letting the probability of a return to gold follow a logistic function. We draw several conclusions: (i) the PPP model works well from spring 1919 to spring 1925; (ii) wholesale prices outperform consumer prices; (iii) allowing for a return to gold leads to a higher speed of adjustment of the exchange rate to PPP; (iv) interest rate differentials and the relative monetary base are crucial determinants of the expected return to gold; (v) the probability of a return to Gold peaked at about 72% in late 1924 and but fell to about 60% in early 1925; and (vi) our preferred model does not support the Keynes view that Sterling was overvalued after the return to gold.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Geld- und Währungsgeschichte (Kugler)
UniBasel Contributors:Kugler, Peter
Item Type:Working Paper
Number of Pages:23
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Last Modified:15 Mar 2018 11:53
Deposited On:15 Mar 2018 11:53

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