Nonlinear Adjustment of the Real Exchange Rate Towards its Equilibrium Value: A Panel Smooth Transition Error Correction Modelling

Sophie Bereau, Agnès Bénassy-Quéré, Valérie Mignon

Research output: Contribution to journalArticle

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.
Original languageEnglish
Pages (from-to)404-416
Number of pages13
JournalEconomic Modelling
Volume27
Issue number1
DOIs
Publication statusPublished - 2010

Keywords

  • Equilibrium exchange rate
  • BEER model
  • Panel smooth transition regression

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