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Nonlinear adjustment of the real exchange rate towards its equilibrium value: A panel smooth transition error correction modelling

Author

Listed:
  • Sophie Béreau

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Antonia López Villavicencio

    (UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona)

  • Valérie Mignon

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'études prospectives et d'informations internationales)

Abstract

We study the nonlinear dynamics of the real exchange rate towards its behavioral equilibrium value (BEER) using a Panel Smooth Transition Regression model framework. We show that the real exchange rate convergence process in the long run is characterized by nonlinearities for emerging economies, whereas industrialized countries exhibit a linear pattern. Moreover, there exists an asymmetric behavior of the real exchange rate when facing an over-or an undervaluation of the domestic currency. Finally, our results suggest that the real exchange rate may be unable to unwind alone global imbalances.

Suggested Citation

  • Sophie Béreau & Antonia López Villavicencio & Valérie Mignon, 2010. "Nonlinear adjustment of the real exchange rate towards its equilibrium value: A panel smooth transition error correction modelling," Post-Print hal-05455673, HAL.
    • Handle: RePEc:hal:journl:hal-05455673
    DOI: 10.1016/j.econmod.2009.10.007
    Note: View the original document on HAL open archive server: https://hal.science/hal-05455673v1
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