This paper studies dynamics of endogenous business cycles and exchange rate volatility in a small open economy. Without … exhibit a higher volatility than other prices. The numerical analysis shows examples which confirm the typical empirically … observed high volatility of nominal exchange rates compared with that of real/domestic variables. …

volatility of shocks is important for the selection and duration of each equilibrium. Sufficiently adverse shocks in periods of … low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical …