The general purpose of this paper is to analyze empirically sectoral price adjustment in the exchange rate adjustment process. Relative price changes may occur within a sector between countries, and within a country between sectors. Our main objective is to test the hypothesis that both kinds of relative price changes occur in the adjustment process to disturbances in money demand and supply. In particular, we expect that the relative prices among goods of different "tradedness"--ranging from perfectly traded to non-traded goods--are affected by such disturbances. Our second objective is to test empirically whether the nature of exchange rate adjustment is affected by the average speed of sectoral price adjustment towards the "law of one price" and whether the exchange rate "overshoots" purchasing power parity after monetary disturbances.
Wihlborg, Clas, and Madelyn Antoncic. "Relative Price Changes And Exchange Rate Determination With Slow Price Adjustment: An Empirical Analysis." Southern Economic Journal 53.1 (1986): 217. Business Source Premier.
Southern Economic Association