The paper reviews the empirical evidence regarding long-run relative purchasing-powerparity (PPP) convergence in the case of Denmark using simple unit-root tests and cointegration tests on new historical time-series indices for the effective krone rate since 1875. The results based on a real effective krone rate index with wholesale prices as deflators support a hypothesis of long-run relative PPP convergence. Half-lives are estimated to around 4 years in the post-1923 period and 2 years in the pre-1914 Classical Gold Standard period. The fastest mean reversions to relative PPP occurred towards the end of the Classical Gold Standard period and towards the end of the Bretton Woods period. The paper does not find support for long-run relative PPP convergence when consumer prices are used as deflators in the real effective krone rate index. This result seems consistent with a priori expectations based on theoretical considerations.
Exchange-rate policy Danish krone exchange rates Effective exchange rates Purchasing-power parity History of exchange rates