Sticky price monetary models of the real exchange rate, while reasonable theoretically, have been disappointing empirically. The most likely reason is that shocks to the market's expectation of the future equilibrium real exchange rate weaken the stability of the statistical association between...

A dynamic general equilibrium economy in which output is exogenous with respect to money is calibrated and simulated following a procedure commonly used in real business cycle literature. It is then confronted with the key comovement patterns of output and nominal variables in the post-war U.S....