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.
- Equilibrium exchange rate
- BEER model
- Panel smooth transition regression
Bereau, S., Bénassy-Quéré, A., & Mignon, V. (2010). Nonlinear Adjustment of the Real Exchange Rate Towards its Equilibrium Value: A Panel Smooth Transition Error Correction Modelling. Economic Modelling, 27(1), 404-416. https://doi.org/10.1016/j.econmod.2009.10.007