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Persistent misalignments of the European exchange rates: some evidence from non-linear cointegration

  • Gilles Dufrenot
  • Laurent Mathieu
  • Valerie Mignon
  • Anne Peguin-Feissolle

The asymmetric and persistent adjustment of the European real exchange rates is investigated using the framework of non-linear cointegration. The episodes of slow mean-reversion dynamics over the period from 1979 to 1999 are explained. A test of unit root against STAR cointegration is proposed and some complete estimations and stochastic simulations of ESTAR models are presented. The presence of effective non-linear adjustment during the moving of the currencies to their long-run fundamental equilibrium exchange rate value is discussed.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 2 ()
Pages: 203-229

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Handle: RePEc:taf:applec:v:38:y:2006:i:2:p:203-229
DOI: 10.1080/00036840500390262
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