Exchange rate fluctuations: a new international macroeconomics approach.

Summary Since the introduction of flexible exchange rates in 1971, the extreme volatility of real exchange rates in OECD countries has raised many questions. Adopting a theoretical approach within the framework of the New International Macroeconomics, the thesis proposes an explanation for the observed fluctuations of nominal and real exchange rates of the G7 countries. In a small open economy limited participation model, it shows the role of credit market frictions in the volatility of the nominal exchange rate. The empirical relevance of the model is statistically assessed by the method of simulated moments. In a two-country framework, local currency price rigidity and credit market frictions help explain the magnitude of real nominal exchange rate fluctuations. Beyond local currency price rigidity, firms' invoicing choices play a central role in the international segmentation of markets.