Lindé, Jesper; Nessén, Marianne; Söderström, Ulf - 2004
We develop a structural model of a small open economy with gradual exchange rate pass-through and endogenous inertia in … imported inflation, the interest rate, and the real exchange rate. However, in order to account for the observed persistence in … the real exchange rate and the large deviations from UIP, we need a large and volatile premium on foreign exchange. …