Purchasing power parity in the 1920s: evidence for the Swiss franc

Tests of purchasing power parity (PPP) are applied to bilateral rates against the Swiss franc for the period of floating exchange rates in the 1920s. The results confirm that the exchange rates of high-inflation currencies tended to move in line with PPP. For low inflation currencies, however, there tended to be underadjustment of nominal exchange rates to relative price movements.