The long-run exchange rate for NOK: a BEER approach
This paper investigates a long-run relation for the trade weighted NOK exchange rate. I find that the NOK Trade Weighted Index (TWI) cointegrates with the real oil price, the price differential and the real interest differential. The paper documents a long-run solution for the TWI. The paper’s main contribution is that the analysis is based on a test for cointegration that is robust to mixed orders of integration in the data. The estimated long-run relation can be considered a benchmark for the nominal exchange rate. This interpretation allows the model to be used when analysing deviations of the nominal exchange rate from the model consistent level. The model is part of the suit of simple cross check models used when analysing the exchange rate in Norges Bank. I also find that the long-run relation is robust to the recent problems in the financial markets.
|Date of creation:||19 2010|
|Date of revision:|
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- Akram, Q.F., 2000.
"PPP Despite Real Shocks: an Empirical Analysis of the Norwegian Real Exchange Rate,"
Economics Series Working Papers
9930, University of Oxford, Department of Economics.
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"The commodity currency puzzle,"
32/2005, Oslo University, Department of Economics.
- Roger Bjørnstad & Eilev S. Jansen, 2007. "The NOK/euro exhange rate after inflation targeting: The interest rate rules," Discussion Papers 501, Statistics Norway, Research Department.
- Qaisar Farooq Akram, 2000.
"When Does the Oil Price Affect the Norwegian Exchange Rate?,"
Economics Series Working Papers
31, University of Oxford, Department of Economics.
- Akram, Q.F., 2000. "When does the Oil Price Affect the Norwegian Exchange Rate?," Economics Series Working Papers 9931, University of Oxford, Department of Economics.
- Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
- Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
- Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, December.
- van Amano, Robert A & Norden, Simon, 1998.
"Exchange Rates and Oil Prices,"
Review of International Economics,
Wiley Blackwell, vol. 6(4), pages 683-94, November.
- Michael P. Clements & David F. Hendry, 2001. "Forecasting Non-Stationary Economic Time Series," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262531895, December.
- Pesaran, M. Hashem & Shin, Y. & Smith, R.J., 1999.
"Bounds Testing Approaches to the Analysis of Long-run Relationships,"
Cambridge Working Papers in Economics
9907, Faculty of Economics, University of Cambridge.
- Mohammad Hashem Pesaran & Yongcheol Shin & Richard J Smith, 1999. "Bounds Testing Approaches to the Analysis of Long Run Relationships," ESE Discussion Papers 46, Edinburgh School of Economics, University of Edinburgh.
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