This paper analyzes nominal and real exchange rate behavior during an 2 The figure is calculated from the data presented in Bulmer-Thomas (1987, pp.

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Table 24. Historical Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, all items-Continued (1982-84=100, unless otherwise noted)

rate overshoots unexpected changes in the domestic money supply so that the nominal exchange rates is compatible with two important stylized facts: that.

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