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Nonlinearities in real exchange rate determination: do African exchange rates follow a radom walk?

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  • Juan Carlos Cuestas
  • Estefania Mourelle

Abstract

In this paper we aim at modelling the long run behaviour of the Real Effective Exchange Rates (REER) for a pool of African countries. Not much attention has been paid to this group of countries, in particular, to the existence of nonlinearities in the long run path of such a variable. Controlling for two sources of nonlinearites, i.e. asymmetric adjustment to equilibrium and nonlinear deterministic trends allows us to gain some insight about the behaviour of the African REER. We find that these sources of nonlinearites help us to explain the apparent unit root behaviour found applying linear unit root tests for most of the countries.

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File URL: http://www.ntu.ac.uk/research/document_uploads/85418.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Nottingham Trent University, Nottingham Business School, Economics Division in its series Working Papers with number 2008/8.

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Date of creation: Jul 2008
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Handle: RePEc:nbs:wpaper:2008/8

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Web page: http://www.ntu.ac.uk/nbs

Related research

Keywords: PPP; Real Exchange Rates; Unit roots; Nonlinearities.;

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Cited by:
  1. Juan Carlos Cuestas & Paulo José Regis, 2010. "Purchasing power parity in OECD countries: nonlinear unit root tests revisited," Working Papers 2010/3, Nottingham Trent University, Nottingham Business School, Economics Division.
  2. Couharde, Cécile & Coulibaly, Issiaka & Damette, Olivier, 2013. "Anchor currency and real exchange rate dynamics in the CFA Franc zone," Economic Modelling, Elsevier, vol. 33(C), pages 722-732.
  3. Daniel Agyapong & Anokye M. Adam, 2012. "Exchange Rate Behaviour: Implication for West African Monetary Zone," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 215-228, October.
  4. Salah Nusair, 2012. "Nonlinear adjustment of Asian real exchange rates," Economic Change and Restructuring, Springer, vol. 45(3), pages 221-246, August.

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