#1987-001A "Relative Price Risk in the Open Economy -- The Case of Fixed Exchange Rates"
by Jürgen von Hagen, and Manfred J.M. Neumann


The impact of aggregate nominal and real shocks on the variance of relative prices is studied in the case of an open economy with fixed exchange rates where agents have limited information about aggregate shocks and the price level. In the first part of the paper it is shown that the limited information problem causes an excess variance of relative prices. More...