We study why fluctuations of the real exchange rate are so volatile with respect to other macroeconomic variables for latin american economies. We use a Bayesian approach to estimate a two-country New Keynesian Open Economy Macroeconomics using data for several latin american economies, and perform model comparisons to study the importance of departing from the law of one price, complete markets assumptions, and perfect pass-through to match the relationship between real exchange rate volatility and other macroeconomic variables volatility. We find that allowing for incomplete markets and imperfect pass-through helps the model to better fit the relative volatility of real exchange rate with respect to some macroeconomic variables for several latin american economies
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