摘要：This paper explores the hypothesis that high volatility of real and nominal exchange rates
may be due to the fact that local currency pricing eliminates the pass-through from changes in
exchange rates to consumer prices. Exchange rates may be highly volatile because in a sense
they have little effect on macroeconomic variables. The paper shows the ingredients necessary
to construct such an explanation for exchange rate volatility. In addition to the presence of local
currency pricing, we need a) incomplete international financial markets, b) a structure of
international pricing and product distribution such that wealth effects of exchange rate changes
are minimized, and c) stochastic deviations from uncovered interest rate parity. Together, it is
shown that these elements can produce exchange rate volatility that is much higher than shocks
to economic fundamentals, and `disconnected’ from the rest of the economy in the sense that the
volatility of all other macroeconomic aggregates are of the same order as that of fundamentals.
