Much has been written about prospects for U.S. current account adjustment, including the possibility of what is sometimes referred to as a disorderly correction: a sharp fall in the exchange rate that boosts interest rates, depresses stock prices, and weakens economic activity. This paper...

We develop a two-country, two-sector general equilibrium business cycle model with nominal rigidities featuring deviations from the law of one price. The paper shows that a model with these features can quantitatively account for the empirical fact that of the statistical properties of most...