We construct a dynamic Ricardian model with a nominal exchange rate and trade costs. The model predicts that the nominal wages of the trading countries exhibit stronger positive comovements when the countries fix their bilateral exchange rates, while comovements of real wages are not affected by...

The introduction of exchange rate regimes into the standard Ricardian model of trade implies stronger positive nominal wage comovements between trading countries that fix their bilateral exchange rates. Panel regression results based on data from OECD countries from 1973 to 2010 suggest that...