Did Purchasing Power Parity Hold in Medieval Europe?

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 and cointegration analysis on 10 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 real exchange rates deviating permanently from fair values. This research extends the results reported in other studies back more than 600 years.

Investigating the Factors Causing Price Differences from Country to Country

“…According to (Bell, Brooks, & Moore, 2017) in opposition to mainstream origination, the laws of effortlessness and solicitation were notable in medieval times. For example, the French scientist Richard Delaware Menneville (d.1302) planned a psychological look at as well as two nations, one during which grain was flooding at any rate wine scanty and also the alternative in which wine was ample and grain onerous to find.…”