Large data sets, nonlinearity and the speed of adjustment to real exchange rate shocks
A well known puzzle in international finance concerns the very slow speeds of adjustment of real exchange rates observed in response to shocks. In this article, we explore whether allowing for a wide range of influences on the real exchange rate in a nonlinear framework can help resolve this puzzle. Using, recently proposed econometric methods for summarizing very large macroeconomic data sets into a small number of observable factors, we find that there is a long run relationship between these factors and real exchange rates. When put into a nonlinear framework, we find that allowing for the effects of macroeconomic factors dramatically increases the measured speed of adjustment of the real exchange rate.
Volume (Year): 44 (2012)
Issue (Month): 5 (February)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAEC20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAEC20|
When requesting a correction, please mention this item's handle: RePEc:taf:applec:44:y:2012:i:5:p:631-639. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.