Can producer currency pricing models generate volatile real exchange rates?
Economics Letters, 116 (3).
Publisher's URL: http://dx.doi.org/10.1016/j.econlet.2012.04.033
If the elasticities of substitution between traded and nontraded and between Home and Foreign traded goods are sufficiently low, then the real exchange rate generated by a model with full producer currency pricing is as volatile as in the data.
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