ABSTRACT
This chapter explores the methodology of exchange-market integration, meaning the extent of perfection of the foreign-exchange market, with empirical application to the American (dollar-sterling) historical experience. The focus is on measurement rather than determination. The two traditional approaches, centering on exchange-rate variation and the gold-point spread, respectively, are reviewed. Then a new and formal model, which integrates the approaches and overcomes their limitations, is developed. Empirical findings of earlier authors are summarized, followed by results based on superior data.
