IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Real exchange rates and real interest rates : A nonlinear perspective

In this paper we use a Threshold AutoRegressive (TAR) model to capture the nonlinear dynamics of monthly real effective exchange rate data for the G7 countries. The novelty of our approach relates to the use of the real interest differential as the switching variable. This choice allows us to consider jointly the nonlinearity and nonstationarity issues using récent advances in asymptotic theory. We find that the null of linearity is easily rejected against the nonlinear model for ail currencies considered. Further, for five out of the seven countries, where the null of unit root is rejected, we report evidence of quite rapid mean reversion.

(This abstract was borrowed from another version of this item.)

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 99-17.

in new window

Date of creation: 1999
Date of revision:
Handle: RePEc:ema:worpap:99-17
Contact details of provider: Postal: 33, boulevard du port - 95011 Cergy-Pontoise Cedex
Phone: 33 1 34 25 60 63
Fax: 33 1 34 25 62 33
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Cletus C. Coughlin & Kees G. Koedijk, 1990. "What do we know about the long-run real exchange rate?," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 36-48.
  2. Kilian, Lutz & Taylor, Mark P., 2001. "Why is it so difficult to beat the random walk forecast of exchange rates?," Working Paper Series 0088, European Central Bank.
  3. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  4. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
  5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  6. Michael Pippenger & Gregory Goering, 2000. "Additional results on the power of unit root and cointegration tests under threshold processes," Applied Economics Letters, Taylor & Francis Journals, vol. 7(10), pages 641-644.
  7. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  8. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
  9. Ronald Macdonald, 1995. "Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 437-489, September.
  10. Hali J. Edison & B. Dianne Pauls, 1991. "Re-assessment of the relationship between real exchange rates and real interest rates: 1974-1990," International Finance Discussion Papers 408, Board of Governors of the Federal Reserve System (U.S.).
  11. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-80.
  12. Henry, Olan T. & Olekalns, Nilss, 2002. "Does the Australian dollar real exchange rate display mean reversion," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 651-666, October.
  13. Edison, Hali J & Melick, William R, 1999. "Alternative Approaches to Real Exchange Rates and Real Interest Rates: Three Up and Three Down," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(2), pages 93-111, April.
  14. Lawrence H. Officer, 1982. "The Purchasing-Power-Parity Theory of Gerrard de Malynes," History of Political Economy, Duke University Press, vol. 14(2), pages 256-259, Summer.
  15. Shin, Dong Wan & Lee, Oesook, 2001. "Tests for Asymmetry in Possibly Nonstationary Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 233-44, April.
  16. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. " The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, vol. 50(4), pages 1309-19, September.
  17. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
  18. Schnatz, Bernd & Vijselaar, Focco & Osbat, Chiara, 2003. "Productivity and the ('synthetic') euro-dollar exchange rate," Working Paper Series 0225, European Central Bank.
  19. Alexius, Annika, 2005. "Productivity shocks and real exchange rates," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 555-566, April.
  20. Bergman, U. Michael & Hansson, Jesper, 2005. "Real exchange rates and switching regimes," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 121-138, February.
  21. Berka, Martin, 2005. "General Equilibrium Model of Arbitrage Trade and Real Exchange Rate Persistence," MPRA Paper 234, University Library of Munich, Germany.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ema:worpap:99-17. 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: (Stefania Marcassa)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.