In new open-economy macroeconomic models, the assumption on the pricing behavior of firms in international trade plays a central role. Whether firms apply producer currency pricing (PCP) or local currency pricing (LCP) crucially affects, for example, the design of optimal monetary policy or the...

Summary This paper derives equilibrium real exchange rates for the EU member countries that joined in 2004 and in 2007. Our analysis is based on the natural real exchange rate approach and uses data for the period 1980-2007. We employ a two-step estimation strategy to deal with the limited...