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Debt Thresholds and Real Exchange Rates: An Emerging Markets Perspective

Listed author(s):
  • Vahagn Galstyan

    ()

    (Department of Economics, Trinity College Dublin)

  • Adnan Velic

    ()

    (Dublin Intitute of Technology)

In this paper we empirically analyze nonlinearities in short-run real exchange rate dynamics. Our findings suggest that real exchange rate misalignments are considerably less persistent and more volatile during times of high debt. Assessing the variance of changes in misalignments, we retrieve evidence indicating that the nominal exchange rate and inflation differentials are more important determinants in states of high debt than in states of low debt. Overall, our results imply that nonlinearities have non-negligible implications for the mechanics of real exchange rate adjustment in emerging markets.

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File URL: https://www.tcd.ie/Economics/TEP/2016/TEP0416.pdf
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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep0416.

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Length: 38 pages
Date of creation: Mar 2016
Handle: RePEc:tcd:tcduee:tep0416
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Trinity College, Dublin 2

Phone: (+ 353 1) 6081325
Fax: 6772503
Web page: http://www.tcd.ie/Economics/

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  36. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
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