This paper documents two facts about countries with floating exchange rates where monetary policy controls inflation … horizon. Second, the real exchange rate is virtually uncorrelated with future inflation rates both in the short run and in the …

inflation rates in shaping the response of real exchange rates to shocks. We document two facts about inflation … rate is a poor predictor of future inflation rates. We estimate a medium-size DSGE open-economy model that accounts … that accounts for the dynamics of exchange rates and their covariance with inflation are disturbances to the foreign demand …