ABSTRACT
This empirical investigation of the behavior of short term nominal interest rates in the United States and Britain and the dollar-sterling exchange rate has found significant seasonal fluctuations in both short term nominal interest rates and the dollar-sterling exchange rate. These findings are in accord with the results of other studies of interest rate seasonality during this period, such as Kemmerer (1911), Morgenstern (1959), Goodhart (1969), Miron (1986), Clark (1986), Sharp (1988), and Barsky et al. (1989). They are also in accord with the results of early studies of exchange rate seasonality such as Kemmerer (1911), Cole (1929), and Morgenstern (1959). This study goes further than other recent investigations of interest rate seasonality during this period, and finds significant differences in the pattern of seasonal fluctuations of short term nominal interest rates in the two countries during the period 1883-1913. Seasonal fluctuations of the dollar-sterling exchange rate are found to exacerbate, rather than offset, the seasonal differences in short term nominal interest rates. This result suggests that uncovered interest parity may not have held during this period.
