We provide a detailed account of nominal exchange rate
determination under GDP deflator targeting at www.
Figure 4 shows the real TWI exchange rate actually faced by NZ, together with those which NZ would have faced from both US and AUS nominal exchange rate
Indeed, with a fixed nominal exchange rate
and low US inflation, a falling real exchange rate would have meant falling Canadian money wages and prices in the 1990s.
In addition to the 14% pass-through of the nominal exchange rate
to consumer prices mentioned earlier, there is also econometric evidence that the level of the real exchange rate has a positive impact on the long-run rate of inflation in Brazil.
However, our results suggest that the market interest rate and the nominal exchange rate
do not have significant relationships with domestic prices.
7) Subsequent to this finding, virtually all macroeconomic models of nominal price level adjustment embody the assumption that all goods adjust to nominal exchange rates
with a lag and at the same rate.
The dependent variable is the real exchange rate which as discussed earlier was defined as the nominal exchange rate
times the price ratio of the foreign and domestic country.
For example, for nominal exchange rate
flexibility, the 22 countries with the smallest or the largest standard deviations of the logs of monthly exchange rates are grouped as "lowest flexibility" or "highest flexibility," respectively.
Also, depreciation in the nominal exchange rate
(Turkish lira [TL] value of U.
For instance, for the United States, these cross-correlations of the nominal exchange rate
are all below 10 percent (in absolute value).
NiGEM can be operated in various ways, from an old fashioned 'backward looking' model in which a change in the nominal exchange rate
(or devaluation) is easy to implement, to one where all agents are forward looking and equilibrium is achieved quickly.
Chinese defenders of the fixed nominal exchange rate
today invariably cite the need for "stability" as the primary rationale for not changing the rate or introducing more flexibility.