Nonlinear Exchange Rate Adjustment in the Enlarged Euro zone. Evidence and Implications for Candidate Countries
AbstractThis paper sheds light on the importance of the validity of PPP hypothesis for the accessing process of the candidate countries towards EMU. The evidence of nonlinear adjustment in real exchange rates insists the estimation of a nonlinear SETAR model. While linear half-life estimates are biased upward (5 years on average), SETAR half-life estimates imply a faster reverting process (1.5 years on average). As a consequence, the evidence in favor of PPP hypothesis and the fast equilibrium adjustment of real exchange rates (setting Euro as the numeraire currency) imply that candidate countries follow a normal integration process towards EMU.
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Bibliographic InfoPaper provided by University of Crete, Department of Economics in its series Working Papers with number 0718.
Length: 27 pages
Date of creation: 10 Jan 2007
Date of revision:
EMU enlargement; PPP; Half-life; Nonlinearity; SETAR.;
Other versions of this item:
- Nikolaos Giannellis & Athanasios P. Papadopoulos, 2010. "Nonlinear Exchange Rate Adjustment in the Enlarged Eurozone: Evidence and Implications for Candidate Countries," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 741-757, 09.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-24 (All new papers)
- NEP-IFN-2007-03-24 (International Finance)
- NEP-MON-2007-03-24 (Monetary Economics)
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