This paper re-assesses the problem of general equilibrium models in matching the behaviour of real exchange rate. We do so by developing a two country general equilibrium model with non-traded goods, home bias, incomplete markets and partial degrees of pass through as well as nominal rigidities...

Global and European trade balances have seen strong divergences combined with strong movements in the exchange rate. Trade balances and real effective exchange rates are related. Using different measures of the real effective exchange rate, we show that this long-run link hinges on the relative...

Originally propounded by the 16th-century scholars of the University of Salamanca, the concept of purchasing power parity (PPP) was revived in the interwar period in the context of the debate concerning the appropriate level at which to re-establish international exchange rate parities. Broadly...

What is the appropriate exchange rate regime for the emerging economies of Eastern Europe? Would a given regime suit all of them equally? Is there a regime that is as appropriate for the transition as for the long run? What are the relative merits of fixed and flexible rates in this context and...

In an influential paper Engel (1999. Accounting for U.S. Real Exchange Rate Changes, Journal of Political Economy 107, 507-538) argues that essentially all the flctuations in the real exchange rate can be attributed to fluctuations in the relative price of traded goods, and that only a small...

We analyze the policy trade-offs generated by local currency price stability of imports in economies where upstream producers strategically interact with downstream firms selling the final goods to consumers. We study the effects of staggered price setting at the downstream level on the optimal...

Although the real exchange rate - real interest rate (RERI) relationship is central to most open economy macroeconomic models, empirical support for the relationship is generally found to be rather weak. In this paper we reinvestigate the RERI relationship using bilateral real exchange rate data...

In this paper we apply two different concepts (BEER and PEER) to calculate real equilibrium exchange rates for fiveEast and Central European EU accession countries. From the results bilateral nominal equilibrium exchange rates againstthe euro are obtained through an algebraic transformation....

The real exchange rate - real interest rate (RERI) relationship is central to most open economy macroeconomic models. However, empirical support for the relationship, especially when cointegrationbased methods are used, is rather weak. In this paper we reinvestigate the RERI relationship using...