Consistency of two major data sources for exchange rates in the interwar period and further evidence on the behaviour of exchange rates during hyperinflations

Abstract

We exploit a rich but rather neglected source of data, The Commercial and Financial Chronicle, to shed light on the behaviour of daily and weekly exchange rates throughout several interwar hyperinflation episodes, paying special attention to the case of Germany. The purpose of our analysis is fourfold: First, we investigate the consistency of exchange rate data by comparing the rates available from The Commercial and Financial Chronicle at daily frequency with those provided by Einzig (1937). Although Einzig is a widely used source, the daily rates of the currencies of countries that witnessed episodes of hyperinflation during the interwar period, reported in The Chronicle, have not been examined previously. Second, we scrutinize the commentaries offered by The Chronicle to shed light on the impact of news on the behaviour of the German mark–U.S. dollar exchange rate over the interwar German hyperinflation and to check whether the narrative analysis provided therein is consistent with formal econometric analyses in dating when the probability of monetary reform became salient. This is crucial for the interpretation of the findings reported by previous studies of the German hyperinflation. Third, we focus on the commentaries that provide evidence on the volume of trade in German marks and on whether the quotations of the exchange rate of the mark against the U.S. dollar were purely notional in the final stages of the hyperinflation. Fourth, for the first time, we examine the behaviour of the real exchange rate of the German mark after the 1923 stabilization episode using data at weekly frequency.