Empirical evidence suggests that the flexibility of labor supply is closely related to the dynamic adjustment of the real exchange rate. This paper investigates this relationship in a two-sector dependent economy model. While, the long-run equilibrium real exchange rate is independent of the...

The real exchange rate is one of the most important price variables in macroeconomics as changes in it have implications for both external competitiveness as well as internal sectoral resource allocation. This paper decomposes real exchange rate volatility into its two components for a panel of...

In this paper, we investigate the relationship between real exchange rate dynamics and financial market imperfections. For this purpose, we first construct a New Open Economy Macroeconomics (NOEM) model that incorporates staggered loan contracts as a simple form of the financial market...

This paper uses the Johansen test for cointegration to check the prediction of a portfolio balance model that predictable valuation effects are associated with a saddle-path dynamic relationship between the net foreign asset position and the real exchange rate. The analysis uses newly...

Exchange rate pass-through in a set of euro area prices along the pricing chain is examined in this paper. First, a vector autoregression (VAR) approach is used to analyze the joint time-series behavior of the euro exchange rate and a system of area-wide prices in response to an exchange rate...

Some empirical research has suggested that inflation is more persistent under floating exchange rates. Theoretically, we should expect a higher variance of inflation persistence across countries under floating rates, but not necessarily a higher mean. It is shown that estimates of inflation...

Exchange rate pass-through in a set of euro area prices along the pricing chain is examined in this paper. First, a vector autoregression (VAR) approach is used to analyze the joint time-series behavior of the euro exchange rate and a system of area-wide prices in response to an exchange rate...

Some empirical research has suggested that inflation is more persistent under floating exchange rates. Theoretically, we should expect a higher variance of inflation persistence across countries under floating rates, but not necessarily a higher mean. It is shown that estimates of inflation...

This paper investigates the relationship between the exchange rate pass-through (ERPT) and inflation by estimating a nonlinear time series model. Based on a simple theoretical model of ERPT determination, we show that the dynamics of ERPT can be well approximated by a class of smooth transition...

In the past decade, some observers have noted an unusual aspect of the Mexican peso’s behavior: During periods when the U.S. dollar has risen (fallen) against other major currencies such as the euro, the peso has risen (fallen) against the dollar. Very few other currencies display this...