This paper contrasts real exchange rate (RER) measures based on different deflators (CPI, GDP deflator, and ULC) and discusses potential implications for the link-or lack thereof-between RER and external balance. We begin by documenting patterns in the evolution of different measures of RERs,...

We examine the stability and strength of the relationship between exchange rates and trade over time using three alternative approaches, mitigating the endogeneity of the relation. We find that both exchange rate pass-through and the price elasticity of trade volumes are largely stable over...

This paper studies the role of the transport costs in accounting for the puzzling behaviors of relative prices and risk sharing across countries. We show that introducing the transport costs in an otherwise standard competitive model improves its ability to rationalize the deviations from the...

The business cycles of advanced economies are synchronized. Standard macro models fail to explain that fact. This paper presents a simple model of a two-country, two-traded-good, complete-financial-markets world in which country-specific productivity shocks generate business cycles that are...

Since recent literature has quantified the persistence of changes in the real exchange rate (RER) using trade-weighted data, in this paper we ask whether the trade-weighted RER is mean reverting. We focus on post-Bretton Woods data for the G7 countries and, after revising the strong correlation...

The reduction of global imbalances observed during the climax of crisis is incomplete. In this context, currencies' realignments are still proposed to ensure global macroeconomic stability. These realignments are based on equilibrium rates derived from equilibrium exchange rate models. Among...

This paper uses a DSGE model of two small open economies to explain certain features of real exchange rate cyclical fluctuations in countries with fixed and flexible exchange rates, focusing on the role of traded and non-traded goods prices. In particular, the model illustrates why the relative...

This paper examines the effect of overall and sector-specific productivity shocks on the real exchange rate in small open economies. A dynamic stochastic small open economy model shows that productivity shocks impact the real exchange rate mostly through changes in the relative price of...

This paper uses a two-country dynamic stochastic general equilibrium model (DSGE) to study how different characteristics of an economy, such as openness or price stickiness, affect the contribution of the relative price of non-traded goods to real exchange rate fluctuations. The model shows that...