Long-Run Purchasing Power Parity and the Dollar-Sterling Exchange Rate in the 1920's

This paper replies to Ahking's (1990) re-examination of Taylor and McMahon's (1988) analysis of long-run purchasing power parity in the 1920s. We demonstrate that Ahking's conclusions are only partially correct and reestablish our conclusion that, a form of long-run purchasing-power parity did in fact hold for dollar-sterling during this period. The new results are also employed to gauge the degree of overvaluation of sterling relative to the imposed prewar parity of $4.86 upon its return to gold and for 12 months afterwards.
Publication date: December 1990
ISBN: 9781451940565
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time series , cointegration , linear trend , econometric analysis

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