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➡️ We avoid the delayed overshooting puzzle: After a monetary policy shock, the exchange rate appreciates immediately before gradually returning to equilibrium.

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➡️ Weakened productivity differential and a decline of Norway's petroleum sector has in particular weakened the krone exchange rate the last decade.

What we find:

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➡️ Productivity shifts and commodity market trends significantly shape the real exchange rate in Canada and Norway.

We propose a structural VAR model with common trends-estimated with Bayesian techniques-to analyse real exchange rate dynamics, enabling a clear distinction between transitory and long-term effects of structural shocks.

Great idea. Happy to be added.