Nominal and Real Devaluation Relationship under Flexible Exchange Rate for Paraguay

This paper aims to explore the correlation between nominal devaluation and real devaluation in case of Paraguay. In doing so, we have used log-linear specification to investigate the relationship between the variables and have employed some sophisticated tests such as Ng-Perron unit root test, ARDL, DOLS tests for the long run association. The findings of the study with Paraguay monthly data suggest that not only in the long run, but also in the short run, nominal devaluation leads to real devaluation.