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Nonlinearities or outliers in real exchange rates?

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  • López Villavicencio, Antonia

Abstract

Long-lasting misalignments in the real exchange rates are sometimes explained by the presence of a nonlinear adjustment process towards the long-run equilibrium. However, while it is possible that evidence of nonlinearity exists for some real exchange rates, outliers and nonlinearity may easily be confused. This paper uses robust methods to examine and compare the behaviour of Smooth Transition Autoregressive [STAR] models for the real exchange rates of 14 countries. The results show that the evidence for nonlinearity is reduced when considering outliers. Nonlinearity is also more common among developing economies.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 25 (2008)
Issue (Month): 4 (July)
Pages: 714-730

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Handle: RePEc:eee:ecmode:v:25:y:2008:i:4:p:714-730

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Web page: http://www.elsevier.com/locate/inca/30411

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References

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Citations

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Cited by:
  1. Al-Shboul, Mohammad & Anwar, Sajid, 2014. "Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market," Economic Modelling, Elsevier, vol. 37(C), pages 451-463.
  2. Sophie Béreau & Antonia Lopez Villavicencio & Valérie Mignon, 2008. "Nonlinear Adjustment of the Real Exchange Rate Towards its Equilibrium Value: a Panel Smooth Transition Error Correction Modelling," Working Papers 2008-23, CEPII research center.
  3. Baharumshah, Ahmad Zubaidi & Liew, Venus Khim-Sen & Chowdhury, Ibrahim, 2010. "Asymmetry dynamics in real exchange rates: New results on East Asian currencies," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 648-661, October.
  4. Fat Codruta Maria & Dezsi Eva, 2011. "Exchange-Rates Forecasting: Exponential Smoothing Techniques And Arima Models," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 499-508, July.
  5. Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers 2009-38, CEPII research center.

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