A problem inherent in all peace treaties and other types of multi-party agreements is the uncertainty of whether the participants have negotiated in good faith and remain committed to the contract. We use advances in macroeconomic theory to show that the unobservable intentions of treaty participants may be accurately reflected in the behavior of economic variables during the time of the treaty. In particular, the warring governments' budget constraints imply that any information concerning the probability of war will be quickly translated into asset prices, exchange rates, and the overall price level. Using this theoretical information with recent advances in time-series econometrics, the authors provide an easily implementable strategy that they argue can be used to monitor the validity of agreements made by warring parties. This information is less costly and less dangerous to obtain than the common strategy of searching for troop movement and armaments, and may be a leading indicator of such activities. The authors assert that the knowledge could prevent monitoring agencies from committing troops to support a cease-fire that the combatants do not intend to uphold. The project itself uses this approach in a systematic analysis of a series of treaties over the past 300 years to produce a deeper understanding of the complex interaction of unobservable political intentions, expectations, and economic variables. The goal of the research is to determine the extent to which one can accurately impute participants' intentions from an analysis of data available during the time of the treaty.
