Labor market flexibility and the real exchange rate

- We analyze how labor market flexibility affects the real exchange rate (RER).
- A more flexible labor market leads to a lower RER.
- Changes in labor market conditions can yield significant changes in the RER.

This paper studies how labor market flexibility can affect the real exchange rate. Both theoretically and empirically, we find that a more flexible (rigid) labor market is associated with a lower (higher) real exchange rate.