Dollar-sterling Exchange Rate Research Articles

Where was the global price of silver established? Evidence from London and New York (1878–1953)

This paper utilises a newly compiled, unique data set of silver prices for the London and New York markets, as well as the monthly Dollar-Sterling exchange rate from 1878 and 1953 to investigate the source and flows of information and price discovery. Results indicate that London was the dominant market and pricing leader of silver throughout the period analysed. Further evidence suggests that there existed dynamic information flows both within years and decades. These phenomena can be explained due to the use of silver for agricultural market payments and international silver production flows respectively.

Where was the Global Price of Silver Established? Evidence from London and New York (1878-1953)

This paper utilises a newly compiled, unique data set of silver prices for the London and New York markets, as well as the monthly Dollar-Sterling exchange rate from 1878 and 1953 to investigate the source and flows of information and price discovery. Results indicate that London was the dominant market and pricing leader of silver throughout the period analysed. Further evidence suggests that there existed dynamic information flows both within years and decades. These phenomena can be explained due to the use of silver for agricultural market payments and international silver production flows respectively.

Uncovering uncovered interest parity during the classical gold standard era, 1888–1905

This paper examines the uncovered interest parity hypothesis using the dollar-sterling exchange rate during the gold standard era. This period is interesting because the exchange rate was seasonal, because transactions costs were high, and because occasions when uncovered interest rate speculation did not occur can be identified. The paper shows UIP speculation frequently did not occur, that speculation was most active in response to expected exchange rate changes not interest differentials when it did occur, and that profitability varied systematically with interest rate differentials. The estimated UIP equations are substantially improved by distinguishing occasions when sterling was borrowed not lent.

Uncovering Uncovered Interest Parity During the Classical Gold Standard Era, 1888-1905

This paper examines the uncovered interest parity hypothesis using the dollar-sterling exchange rate during the gold standard era. This period is interesting because the exchange rate was seasonal, because transactions costs were high, and because occasions when uncovered interest rate speculation did not occur can be identified. The paper shows UIP speculation frequently did not occur, that speculation occurred more in response to expected exchange rate changes than interest rate differentials, and that profitability varied systematically with interest rate differentials. The estimated UIP equations are substantially improved by distinguishing occasions when sterling was borrowed not lent.

A New Analysis of the Determinants of the Real Dollar-Sterling Exchange Rate: 1871-1994

The high persistence of both PPP deviations and the proxy variables for the equilibrium real rate might create a problem of spurious coefficient significance within recently applied nonlinear models. To illustrate we consider the real Dollar-Sterling exchange rate over the period 1871–1994. A nonlinear ESTAR process with a time-varying equilibrium seems to parsimoniously fit the data. Appropriate significance levels are obtained using the wild bootstrap method to adequately capture the conditional heteroskedasticity in the data. Our results provide further evidence for the nonlinear model and the implied speed of adjustment is found to be substantially faster than previously reported in the literature.

Using Copulas to Construct Bivariate Foreign Exchange Distributions with an Application to the Sterling Exchange Rate Index

We model the joint risk-neutral distribution of the euro-sterling and the dollar-sterling exchange rates using option-implied marginal distributions that are connected via a copula function that satisfies the triangular no-arbitrage condition. We then derive a univariate distribution for a simplified sterling effective exchange rate index. Our results indicate that standard parametric copula functions, such as the commonly used Normal and Frank copulas, fail to capture the degree of asymmetry observed in the data. We overcome this problem by using a non-parametric dependence function in the form of a Bernstein copula which is shown to produce a very close fit. We further give an example of how our approach can be used to price currency index options.

Is there a relationship between real exchange rate movements and the output cycle?

This paper investigates the cyclical relationships between UK and US output and the real dollar–sterling exchange rate over the floating rate period from 1973 to 1999. We find that innovations to UK and US output influence the real exchange rate with 7-quarter and 13-quarter delays, respectively, before the maximum response is felt, with innovations in the real exchange rate having a much smaller effect on UK and US output.

Realignment expectations and the US dollar, 1890–1897: Was there a ‘Peso problem’?

We investigate dollar–sterling exchange rate expectations during the period 1890–1908. We show that the dollar faced a ‘Peso problem’ in that for much of the period financial markets expected it to depreciate against sterling, but this never in fact happened – i.e. expectations were persistently biased. Drawing on the economic history of the period we identify 11 ‘events’ which probably gave rise to realignment expectations. Once the dollar's adherence to the gold standard was settled as a political matter in the 1896 Presidential Election expectations of dollar realignment abruptly subsided and United States interest rates fell relative to British rates.

Testing efficient market hypothesis for the dollar–sterling gold standard exchange rate 1890–1906: MLE with double truncation

This paper tests an efficient market hypothesis for the dollar–sterling exchange rate under the classical gold standard in the period 1890–1906. The test is based on maximum likelihood estimation of doubly truncated time series. The results show that weak-form efficiency can not be rejected if truncation by the gold points is incorporated. The results, however, are sensitive to the gold points estimates used.

Purchasing power parity over two centuries?

This paper re-examines the purchasing power parity hypothesis for the dollar–sterling exchange rate using the two centuries of data from Lothian and Taylor (LT) (1996) [Real exchange rate behavior: the recent float from the perspective of the past two centuries. Journal of Political Economy 104 (3), 488–509]. Unlike LT, we conclude that the dollar–sterling RER is nonstationary, implying a rejection of the long-run PPP hypothesis. The differences in our conclusions are explained by: (1) sensitivity of ADF unit root tests to the choice of lag length, and/or (2) the presence of significant time trends in the ADF or Phillips–Perron unit root test equations.

Gold-Point Arbitrage and Uncovered Interest Arbitrage under the 1925-1931 Dollar-Sterling Gold Standard

Efficient gold-point arbitrage confines the exchange rate to the gold-point spread, but efficient uncovered interest arbitrage stabilizes the exchange rate even more, locating it within a narrower "speculation band." Under the 1925-1931 dollar-sterling gold standard, gold-point arbitrage was uniformly efficient, but uncovered interest arbitrage exhibited periodic episodes of apparent inefficiency, susceptible to various explanations. Gold-point arbitrage and uncovered interest arbitrage reinforce each other′s efficiency, thereby enhancing exchange-rate stability. In fact, the dollar-sterling exchange rate during the interwar gold standard was considerably more stable than that in the classical period.

Dollar-sterling exchange rate in the 1920s: purchasing power parity and the Norman conquest of $4.86

The issue of long-run purchasing power parity for the US dollar–UK sterling exchange rate during the 1920s float is re-examined, and it is concluded 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 pre-war parity of $4.86 on its return to gold in 1925 and for 12 months afterwards.

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

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.

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.

Dollar-Sterling Mint Parity and Exchange Rates, 1791–1834

Two series of the dollar-sterling exchange rate are presented for the 1791–1834 period, both series based on actual transactions and corrected for the component of interest in bills of exchange and for episodes of floating exchange rates. Expressed as deviations from a true parity measure and conjoined with existing data for 1835–1900, the series permit an examination of the stability of the gold points over the entire nineteenth century. The steady narrowing of metallic points, previously found for 1835–1900 and confirmed here, does not apply to the earlier period; but evidence suggests that movement to an integrated market in foreign exchange developed in the 1820s.

Foreign Interest Rates in American Financial Markets: A Revised Series of Dollar-Sterling Exchange Rates, 1833–1900

This paper offers a revised series of nineteenth-century Anglo-American foreign exchange rates. The new series is based partly on the reinterpretation of data presented earlier by other scholars and partly on a recently rediscovered source of continuous information on sterling-dollar rates after 1869. The pioneering work in this area was done by Lance Davis and Jonathan Hughes. They published in 1960 a quarterly dollar-sterling exchange rate series (1835 to 1895) based on the actual prices paid for approximately 3,000 sterling bills by Nathan Trotter's Philadelphia-based metals importing firm.