A two-country model that incorporates many features proposed in the New Open Economy Macroeconomics literature is developed in order to replicate the volatility of the real exchange rate and its disconnect with macroeconomic variables. The model is estimated using data for the euro area and the...

We explore income and consumption smoothing patterns among European Community countries and among OECD countries during the period 1966-90. We find that for OECD as well as for EC countries about 40 percent of shocks to GDP are smoothed at the one year frequency, with about half the smoothing...