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This paper argues that the primary force behind the large fall in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis is based on data from four large devaluation episodes: Mexico (1994), Korea (1997), Brazil (1999), and Argentina (2001). We conduct a more detailed analysis of the Argentina case using disaggregated CPI data, data from our own survey of prices in Buenos Aires, and scanner data from supermarkets. We then construct an open economy general equilibrium model that can account for the slow adjustment in nontradable good prices after a large devaluation. J.E.L. Classification: F31 ∗We thank Miles Kimball for his suggestions, Kei-Mu Yi for sharing data and information on input-output tables with us, and Federico Ganduglia and Martin Cortes for assistance in collecting prices in Argentina. We also thank Andy Levin, Mario Crucini, Ivan Werning, and Mike Woodford for their comments. We gratefully acknowledge financial support from the