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Non-Linearities and Real Exchange Rate Dynamics

Author

Listed:
  • Jean Imbs

    (Center for Economic Research - CEPR, London Business School)

  • Haroon Mumtaz

    (London Business School)

  • Morten O. Ravn

    (Center for Economic Research - CEPR, London Business School)

  • Helene Rey

    (Center for Economic Research - CEPR, Princeton University, NBER - The National Bureau of Economic Research)

Abstract

We confirm the presence of substantial nonlinearities in real exchange rate dynamics at the sectoral level. There exists zones where arbitrage is not profitable because of transaction costs, and thus mean reversion is inexistent. We compute the speed of mean reversion of sector specific real exchange rates, conditional on the existence of arbitrage as implied by our nonlinear estimations, and relate them to plausible economic determinants such as tradability and exchange rate volatility.

Suggested Citation

  • Jean Imbs & Haroon Mumtaz & Morten O. Ravn & Helene Rey, 2003. "Non-Linearities and Real Exchange Rate Dynamics," Post-Print hal-00612596, HAL.
    • Handle: RePEc:hal:journl:hal-00612596
    DOI: 10.1162/154247603322391279
    as

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    Keywords

    Non-Linearities; Exchange Rates; Transport costs;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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