Marcela Sabaté

PPP and structural breaks. The peseta–sterling rate, 50 years of a floating regime

Abstract This paper aims to illustrate the relevance of considering structural breaks in Purchasing Power Parity (PPP) tests. To that end, we examine the peseta–sterling real exchange rate between 1870 and 1935. This is an interesting series, given that the peseta was not part of the gold standard yet maintained a floating rate regime during most of that period. When breaks are not considered, it is impossible to reject the existence of a unit root in the series. However, if two breaks are allowed, with these capturing the particular events that occurred in the monetary history of these currencies at the beginning and end of the period, then the null hypothesis can be rejected and PPP emerges as a good approximation of the behavior of the peseta–sterling exchange rate, even if that rate was predominantly a floating regime.

Economic growth and the long run balance of payments constraint in Spain

The Thirlwalls Law test has been extensively employed in order to explain, from the demand side, the differences in rates of economic growth between countries. In this paper the test is put to an alternative use, namely to explain the uneven economic growth experienced in one single country, Spain, during two different periods, 1940-59 and 1960-85. Specifically, we seek to determine whether the liberalization of Spanish trade which preceded its integration into the EEC (1960-85) - insofar as this liberalization increased the possibilities of placing national production in the foreign market-might explain the higher rate of economic growth enjoyed during this period, as compared with the earlier period of economic autarky (1940-59). To that end, we estimate the corresponding export and import demand functions (using the Autoregressive Distributed Lags methodology and the cointegration approach of Johansen) and apply the McCornbie test. We conclude that the Spanish balance of payments, although determining the difference in potential growth between the two periods, did not function, strictu sensu, as a demand constraint. Rather, the responsibility for this lay with prices, which relaxed the limits imposed by foreign demand on growth during the autarky period and tightened them during the liberalization period.

The peripheral protectionist backlash in the First Globalization : Spain (1870-1913)

This paper studies the role played by different trade barriers (transport costs, customs and currency) in the evolution of Spanish imports during the First Globalization (1870-1913). Through the estimation of several gravity equations with panel data analysis, we obtain the elasticities of imports to each barrier, which allows us to combine them into a single ad valorem measure of barriers to trade (which we call the trade costs tariff equivalent ). More interestingly, the contribution of the barriers to the profile of the tariff equivalent , as well as the assignment of an active role to the peseta exchange rate as a barrier, illustrates the existence of a protectionist backlash against the sustained decline in transport costs in the period 1870-1913.

La sombra monetaria del déficit en la España de la peseta

According to the literature, the predominance of budget deficits conditioned money growth in Spain while the peseta was its currency. The idea of a long-running fiscal interference in monetary dynamics is partly backed by the contribution of the public component to monetary base growth in 1874-1998. This paper confirms the existence of this interference by finding a long-running causal relationship between budget and money for the whole period. The weakening of causality between budget and the monetary base allows us to locate the end of seigniorage in Spain in the mid-1980s. It is not until the 1990s that the weakening of causality between budget and a broader definition of money (Liquid Assets held by the Public) reflected the efforts towards nominal convergence prior to joining the European Monetary Union. KEY Classification-JEL: E5, H6, N1

Gone with the Euro: a reappraisal of the peseta's adjustment mechanism (1870-1998)

The peseta was the Spanish currency for more than a century and, during this time, it played a remarkable role in adjusting the balance of payments. This paper presents a chronology of the moments when the adjustment was crucial, which, consistent with the macro-trilemma, coincided with periods of external openness. Moreover, this paper provides empirical support to the thesis that links the exceptionality of a floating peseta during the gold standard with fiscal profligacy.

Lost in intervention. The Harrod–Balassa–Samuelson effect on the peseta/dollar real exchange rate (1870–1998)

ABSTRACT We have decomposed the peseta/dollar real exchange rate (1870–1998) into its trend and cyclical components and used the former to proxy its time-varying equilibrium. Then, we have compared changes in the equilibrium with changes in the Spanish and the USA productivity differentials to identify years that do not fit with the Harrod–Balassa–Samuelson (HBS) hypothesis. The greatest maladjustment is found in the 1940s and 1950s, decades of strong exchange rate intervention in Spain. Conversely, the link between equilibrium and differentials adjusts to the hypothesis when using the non-intervened peseta/dollar exchange rate on the Tangier black market. These contrasting results back up the idea that exchange rate intervention, so common in developing countries, might explain their scanter evidence in favour of the HBS effect.

Long-run fiscal dominance in Argentina, 1875–1990

For most of the twentieth century, Argentina solved the macroeconomic policy trilemma through domestic monetary sovereignty. This article illustrates how the need to finance deficits was behind Argentine sovereignty. We test the hypothesis of fiscal dominance between 1875 and the approval of the Austral Plan in 1991 and find that deficits drove money creation in the long run. The article also reveals how fiscal dominance, in a scenario of increasing currency substitution, helps to explain the dynamics of Argentine inflation in the second half of the twentieth century.