The Floating Dollar in the Greenback Period: A Test of Theories of Exchange-Rate Determination

Abstract

Some leading modern theories of exchange-rate determination are pitted against each other in explaining fundamental movements of the freely floating U.S. dollar in the foreign-exchange market during the greenback period, 1862–1878. A purchasing-power-parity theory augmented to incorporate interest-rate, and possibly income, effects provides the best explanation of the exchange rate. The standard works on the greenback period are subject to some amendments in light of the study. © 1981, The Economic History Association. All rights reserved.