Authors

• Rafael Torres Sánchez (rtorres@unav.es)
  School of Economics and Business Administration, University of Navarra
• Javier Gómez Biscarri (jgomezbis@unav.es)
  School of Economics and Business Administration, University of Navarra
• Fernando Pérez de Gracia (fgracia@unav.es)
  School of Economics and Business Administration, University of Navarra

Abstract
This article explores the behavior of exchange rates in Spain during the XVIII century. We posit that exchange rates were the result of both government intervention over nominal values of currencies and the estimate that the market of bills of exchange- gave to the value of the currency. We analyze the exchange rates quoted in London on three Spanish cities between 1699 and 1826. After a brief overview of the functioning of the Spanish monetary system and of exchange rate determination, we assess the extent to which the exchange rate responded to market fundamentals by testing some theoretical models of exchange rate determination. The results suggest that purchasing power parity held during the XVIII century, with the exchange rate tracking quite closely the behavior of inflation differentials. Deviations from PPP appeared at the end of the century, due mostly to changes in the real exchange rate caused by the bilateral trade balance between Spain and Great Britain and, maybe, to productivity differentials.

Classification JEL:F31; N13; N23

Number of Pages:40

Creation Date:2004-09-01

Number:null/04