DEVIATIONS FROM LONG-RUN EQUILIBRIA AND PROBABILITIES OF DEVALUATIONS- AN EMPIRICAL-ANALYSIS OF DANISH REALIGNMENTS

Deviations from Long-Run Equilibria and Probabilities of Devaluations - An Empirical Analysis of Danish Realignments, - The probabilities of realignments between the Danish krone and the D-mark are investigated for the 1979-1995 period. Two multivariate systems are estimated. In the I(1) systems, the deviations from the cointegration relations are used as explanatory variables when determining the probabilities of ex change rate changes. It is found that real imbalances in the economy h ave to a large extent determined the probabilities of central parity c hanges. Furthermore, the probabilities of central parity changes have been significantly lower after 1983.