The conventional view, as expounded by sticky-price models, is that price adjustment determines the PPP reversion rate …. This study examines the mechanism by which PPP deviations are corrected. Nominal exchange rate adjustment, not price … adjustment, is shown to be the key engine governing the speed of PPP convergence. Moreover, nominal exchange rates are found to …

adjustment of the contract payment, involving adjustment costs for both players. Players’ payoffs from trade under the contract … whenever the contract payment relative to the outcome of an adjustment passes a certain threshold, depending among other things … of the adjustment costs. There is strategic substitutability in the choice of thresholds, so that if one player becomes …

This study investigates whether exchange rate flexibility aids real exchange rate adjustment based on intra-period data … produces faster or slower real exchange rate adjustment than the much less flexible official rate does. Half-life estimates of … adjustment speeds are obtained using fractional time series analysis. We find no systematic evidence that greater exchange rate …