Devaluation of domestic currency is traditionally believed to foster a country’s trade balance. Innumerable papers have attempted to scrutinize the exchange rate-trade balance nexus in many countries across the globe, yet their conclusions diverge as they utilize different data, time frames,...

This paper examines the implications of menu cost models for the rate of reversion to purchasing power parity. Recent menu cost models (Ball and Mankiw, 1994) imply that higher inflation is correlated with more rapid price adjustment. This means that reversion to PPP may be more rapid, the...