On one hand, it could be the result of a highly negative correlation between nominal exchange rates
and foreign prices.
These structural factors could not be affected by movements in nominal exchange rates
Second, model-based criteria, based on the formal models of nominal exchange rates
A vector autoregression (VAR) was employed to investigate the joint behavior of real and nominal exchange rates
in order to identify the nominal and real shocks that caused fluctuations in the real exchange rate.
Some recent papers show not only that nominal exchange rates
are less volatile in developing countries, but also that their international reserves and domestic interest rates are significantly more volatile (Calvo and Reinhart (2002), (2000), Hausmann, Panizza, and Stein (2001), Levy-Yeyati and Sturzenegger (2002)).
Because sterilized intervention does not affect exchange rate fundaments, it offers an extremely weak lever with which nominal exchange rates
can be nudged along a market-determined path.
manufactured goods depends not on the behavior of nominal exchange rates
, but on movements in nominal exchange rates
relative to prices.
That is, real and nominal exchange rates
are about six times more volatile than relative price levels and both are highly persistent, with first-order serial correlations of about 0.
The paper undertakes an extensive examination of the behaviour of the Norwegian real and nominal exchange rates
and shows that it is remarkably consistent with the PPP theory.
2) There is also an ongoing discussion on whether or not nominal exchange rates
in deregulated financial markets move in an equilibrating fashion in the case of asymmetric shocks.
To avoid estimation problems arising from this correlation, Equation 4 may have to be estimated in terms of nominal exchange rates
if the variable lnPD is included in the cointegrating equation.
consumer prices to foreign consumer prices translated into dollars at current nominal exchange rates