Abstract
The fact that fluctuations in real exchange rates are highly volatile and persistent has been the central puzzle in international macroeconomics. This paper studies the role of real frictions in accounting for the puzzling behavior of real exchange rates. We show that the introduction of distribution costs and nontradable goods in an otherwise standard competitive model dramatically improves its ability to rationalize observed real exchange rate dynamics. We view our framework as complementary to those that emphasize the role of nominal rigidities.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
