Nonlinear adjustment of the real exchange rate towards its equilibrium value: A panel smooth transition error correction modelling |
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Authors: | Sophie Béreau Antonia López Villavicencio Valérie Mignon |
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Institution: | 1. EconomiX-CNRS, University of Paris Ouest, France;2. CEPN-CNRS, University of Paris 13, France;3. EconomiX-CNRS, University of Paris Ouest and CEPII, Paris, France |
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Abstract: | We study the nonlinear dynamics of the real exchange rate towards its behavioral equilibrium value (BEER) using a Panel Smooth Transition Regression model framework. We show that the real exchange rate convergence process in the long-run is characterized by nonlinearities for emerging economies, whereas industrialized countries exhibit a linear pattern. Moreover, there exists an asymmetric behavior of the real exchange rate when facing an over- or an undervaluation of the domestic currency. Finally, our results suggest that the real exchange rate may be unable to unwind alone global imbalances. |
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Keywords: | F31 C23 |
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