This paper reconciles the persistence of aggregate real exchange rates with the faster adjustment of international … stylized facts regarding this puzzle. First, adjustment to purchasing power parity deviations in aggregated data is not just a … slower version of adjustment to the law of one price in microeconomic data, as arbitrage occurs in different markets, in …

This paper reconciles the persistence of aggregate real exchange rates with the faster adjustment of international … stylized facts regarding this puzzle. First, adjustment to purchasing power parity deviations in aggregated data is not just a … slower version of adjustment to the law of one price in microeconomic data, as arbitrage occurs in different markets, in …

Adjustment to an external imbalance is more diffi cult within a monetary union if wages are sticky. Periods of high … unemployment are usually necessary to achieve the required real depreciation (internal devaluation). Gradual adjustment is usually … recommended to distribute the output and employment cost over time. This paper takes into account that gradual adjustment also has …