Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 5

Figure 23-8 presents the evolution of real and nominal exchange rates for Canada and the United States. Obtain a similar graph for real and nominal exchange rates in Germany and the United States.
a. Go to www.bls.gov and download monthly data over the period 1982-1997 for Consumer price index in Germany: Under "Subject Areas," mouse over "International" and click on "International Labor Comparisons." Scroll down and click on "One-Screen Data Search." Search for Germany for country and select "Consumer Price Index, All Items" for group. Check the box for "All Households Index" and click "Get Data." You will need to adjust the date to 1982-1997. Consumer price index in the United States: Follow the same steps as above for Germany's CPI, but this time select the United States as the country. Exchange rate between the DM and the US$: Go to http://research.stlouisfed.org/fred2 and click on "Categories," followed by "Exchange Rates" and then "By Country." Choose Germany and download data for "Germany/U.S. Foreign Exchange Rate (Discontinued Series)."
b. Calculate the real exchange rate between Germany and the United States using the formula

c. Create a graph that includes both the real and the nominal exchange rate. Do the two variables move together