From Medievalists.net, August 2014:
Did Purchasing Power Parity Hold in Medieval Europe? Adrian R. Bell, Chris Brooks, and Tony K. Moore (ICMA Centre, Henley Business School, University of Reading)
Henley Business School Discussion Paper Series, January (2014)
Abstract
This paper employs a unique, hand-collected dataset of exchange
rates for five major currencies (the lira of Barcelona, the pound
sterling of England, the pond groot of Flanders, the florin of Florence
and the livre tournois of France) to consider whether the law of one
price and purchasing power parity held in Europe during the late
fourteenth and early fifteenth centuries. Using single series and panel
unit root and stationarity tests on ten real exchange rates between 1383
and 1411, we show that the parity relationship held for the pound
sterling and some of the Florentine florin series individually and for
almost all of the groups that we investigate. Our findings add to the
weight of evidence that trading and arbitrage activities stopped
currencies deviating permanently from fair values and that the medieval
financial markets were well functioning. This supports the results
reported in other recent studies which indicate that many elements of
modern economic theories can be traced back over 700 years in Europe....
...
MORE
