Dornsbush revisited from an asymmetrical perspective: Evidence from G20 nominal effective exchange rates

Frédérique Bec and Mélika Ben Salem ()
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Mélika Ben Salem: ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12

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Abstract: This paper develops an asymmetrical overshooting correction autoregressive model to capture excessive nominal exchange rate variation. It is based on the widely accepted perception that open economies might prefer under-evaluation to over-evaluation of their currency so as to foster their net exports. Our approach departs from existing works by allowing the strength of the overshooting correction mechanism to differ between over-depreciations and over-appreciations. It turns out that most of monthly effective exchange rates for the G20 countries are in fact well characterized by an overshooting correction after an over-appreciation only.

Date: 2019-10-17
New Economics Papers: this item is included in nep-cba
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Working Paper: Dornsbush revisited from an asymmetrical perspective: Evidence from G20 nominal effective exchange rates (2019)
Working Paper: Dornsbush revisited from an asymmetrical perspective: Evidence from G20 nominal effective exchange rates (2019)
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