In this paper we develop a general equilibrium model of exchange rates where expectations of future variables directly affect the current exchange rate through an 'asset-market' term. This term, which results from the assumptions of incomplete asset markets and segmented product markets, does...

Empirical evidence documents a low pass-through of exchange rate changes to consumer prices in the short-run under a flexible exchange rate regime and the existence of relative price differentials across countries under a fixed exchange rate regime. Whether a two-country model is consistent with...

In this paper we develop a general equilibrium model of exchange rates where expectations of future variables directly affect the current exchange rate through an 'asset-market' term. This term, which results from the assumptions of incomplete asset markets and segmented product markets, does...