On one hand, it could be the result of a highly negative correlation between nominal exchange rates
and foreign prices.
Data on the nominal exchange rates
for all the four countries is available in terms of US Dollar.
These structural factors could not be affected by movements in 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.
(13) In the model, changes in nominal exchange rates
are driven by a monetary shock, which is a reduction in money demand for the domestic currency.
How then does sterilized intervention affect nominal exchange rates
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 0.85 and 0.83, respectively, at annual frequency.
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.
The revaluation of the central rate of the Irish pound in the run-up to EMU in the spring of 1998 also showed a readiness to adjust nominal exchange rates
when this is believed to contribute to macroeconomic stability.
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