Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192308 
Year of Publication: 
2002
Series/Report no.: 
Discussion Papers No. 326
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
Modelling the Norwegian exchange rate against a basket of currencies, we find a robust long-term link between the real exchange rate and real interest differential that is consistent with purchasing power parity (PPP) and uncovered interest parity (UIP). However, PPP alone is rejected. These findings are confirmed focusing on the Norwegian bilateral exchange rate with Germany and (possibly) Sweden, but rejected against the UK and the US. We argue that rejection of bilateral relationships may result from idiosyncratic shocks in the different countries that may be negligible when modelling against a basket of currencies.
Subjects: 
Purchasing power parity
uncovered interest parity
cointegration VAR.
JEL: 
C32
F31
Document Type: 
Working Paper

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