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

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Author Info
Sophie Bereau
Antonia Lopez Villavicencio
Valerie Mignon

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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 is unable to unwind alone global imbalances.

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File URL: http://www.cepii.fr/anglaisgraph/workpap/summaries/2008/wp08-23.htm
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Paper provided by CEPII research center in its series Working Papers with number 2008-23.

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Date of creation: 2008
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Handle: RePEc:cii:cepidt:2008-23

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Related research
Keywords: Equilibrium exchange rate; BEER model; panel smooth transition regression; panel vector error correction model;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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