Nonlinear Adjustment of the Real Exchange Rate Towards its Equilibrium Value: a Panel Smooth Transition Error Correction Modelling

Sophie Béreau (), Antonia López Villavicencio () and Valérie Mignon ()

Working Papers from CEPII research center

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 is unable to unwind alone global imbalances.

Keywords: Equilibrium exchange rate; BEER model; panel smooth transition regression; panel vector error correction model (search for similar items in EconPapers)
JEL-codes: F31 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ets, nep-ifn and nep-opm
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:cii:cepidt:2008-23

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