Can producer currency pricing models generate volatile real exchange rates?

If the elasticities of substitution between traded and nontraded and between Home and Foreign traded goods are sufficiently low, then the real exchange rate generated by a model with full producer currency pricing is as volatile as in the data.

► With full producer currency pricing (PCP) the real exchange rate is not very volatile. ► This happens because of expenditure-switching. ► I investigate a simple way to get high real exchange rate volatility with full PCP.