The exhibit below shows that both countries'
nominal exchange rates with trading partners have remained broadly stable since 2010, reflecting their respective pegs.
where RER represents the real exchange rate; NER represents the
nominal exchange rate and CPI represents the consumer prices index.
Chart 3 shows the movement of the
nominal exchange rate of the yen vis-a-vis the US dollar and the Japanese export price index (all industries).
Monetary policy in Singapore is unique in that it uses the
nominal exchange rate to achieve low inflation and sustained growth.
iii) if we consider the
nominal exchange rate, the BRL appreciated in 6 of the 11 years in which the BCB met the inflation target (55% of the success cases).
After 2001,
nominal exchange rate of Pakistan is highly volatile, though, the other economic fundamentals remain the same.
The terms i, i, s and premt denote annualized quarterly domestic and foreign interest rates, Pak Rupee/$
nominal exchange rate and country specific FX risk premium respectively.
What this suggests is that for European countries, the relative stability of bilateral
nominal exchange rates may have been important in allowing for a more fundamental-based evolution of real exchange rates, in contrast to the findings from a wider sample of countries where
nominal exchange rate variation becomes a much more important element.
It seems that short-term nominal interest rates in countries with a
nominal exchange rate anchor are less exposed to the liquidity shocks due to their high vulnerability to external ([current account.
But the prices of tradables themselves--including primary commodities and manufactured goods--would be pinned down to world levels by a fixed
nominal exchange rate.
The
nominal exchange rate is currently at historically high levels against nearly all of our trading partners.
Thus, monetary policy cannot be used to initiate changes in the real exchange rate designed to achieve some domestic goal if this involves changing the
nominal exchange rate.
