EXCHANGE-RATE DYNAMICS REDUX

We develop an analytically tractable two-country model that marries a full account of global macroeconomic dynamics to a supply framework ba sed on monopolistic competition and sticky nominal prices. The model o ffers simple and intuitive predictions about exchange rates and curren t accounts that sometimes differ sharply from those of either modern f lexible-price intertemporal models or traditional sticky-price Keynesi an models. Our analysis leads to a novel perspective on the internatio nal welfare spillovers due to monetary and fiscal policies.