Exchange Rates, Prices and Money: Lessons from the 1920s

Abstract

This paper summarizes the results of an empirical study of the operation of flexible exchange rates during the 1920's under both the hyperinflationary conditions (based on the experience of Germany) and under the normal conditions (based on the experience of Britain, the United States and France).Section I deals with some general characteristics of the market for foreign exchange by examining the relationship between spot and forward exchange rates. Section II deals with the relationship between exchange rates and prices by examining aspects of the purchasing power parity doctrine. Section III deals with the determinants of exchange rates within the context of a simple monetary model.