Nonlinear adjustment of Asian real exchange rates
AbstractWe utilize nonlinear models to examine the stationarity of Asian real exchange rates over the period from 1980:10 to 2007:09, using the US, Japan, and China as base countries. We find evidence of nonlinearity in most cases. Contrary to widely-held belief that the behavior of the real exchange rate should exhibit symmetrical adjustment for deviations above and below the equilibrium level, we find strong evidence of asymmetrical adjustment for most cases. Applying unit root tests that account for two types of nonlinearities (smooth transition and nonlinear deterministic trends) reveals evidence of stationarity in all but the Philippines vis-à-vis Japan. Further testing shows that the results are robust to different exchange rate regimes and, in the case of Malaysia, robust to the imposition of capital controls after the 1997 Asian crisis. Copyright Springer Science+Business Media, LLC. 2012
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Bibliographic InfoArticle provided by Springer in its journal Economic Change and Restructuring.
Volume (Year): 45 (2012)
Issue (Month): 3 (August)
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Web page: http://www.springerlink.com/link.asp?id=113294
Real exchange rate; Nonlinear unit root tests; Nonlinear deterministic trends; F31; F41; C22;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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