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Non-linear and non-symmetric exchange-rate adjustment: Evidence from medium- and high-inflation countries

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  • Michael Arghyrou
  • Virginie Boinet
  • Christopher Martin

Abstract

This paper analyses a model of non-linear exchange rate adjustment that extends the literature by allowing asymmetric responses to over- and under-valuations. Applying the model to Greece and Turkey, we find that adjustment is asymmetric and that exchange rates depend on the sign as well as the magnitude of deviations, being more responsive to over-valuations than undervaluations. Our findings support and extend the argument that non-linear models of exchange rate adjustment can help to overcome anomalies in exchange rate behaviour. They also suggest that exchange rate adjustment is non-linear in economies where fundamentals models work well. Copyright Academy of Economics and Finance 2006

Suggested Citation

  • Michael Arghyrou & Virginie Boinet & Christopher Martin, 2006. "Non-linear and non-symmetric exchange-rate adjustment: Evidence from medium- and high-inflation countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 30(1), pages 38-56, March.
    • Handle: RePEc:spr:jecfin:v:30:y:2006:i:1:p:38-56
    DOI: 10.1007/BF02834274
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    Cited by:

    1. Stefan Norrbin & Aaron Smallwood, 2010. "Generalized long memory and mean reversion of the real exchange rate," Applied Economics, Taylor & Francis Journals, vol. 42(11), pages 1377-1386.

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