Real exchange rates and real interest rates: a nonlinear perspective

Frédérique Bec, MŽlika BEN SALEM and Ronald MacDonald ()
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MŽlika BEN SALEM: OEP, UniversitŽ Marne-la-VallŽe

No 2006024, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: In this paper we use a Threshold AutoRegressive (TAR) model to capture the nonlinear dynamics of monthly real effective exchange rate data for the G7 countries. The novelty of our approach relates to the use of the real interest differential as the switching variable. This choice allows us to consider jointly the nonlinearity and nonstationarity issues using rŽcent advances in asymptotic theory. We find that the null of linearity is easily rejected against the nonlinear model for ail currencies considered. Further, for five out of the seven countries, where the null of unit root is rejected, we report evidence of quite rapid mean reversion.

Keywords: Real exchange rate; threshold autoregressive model; unit-root (search for similar items in EconPapers)
JEL-codes: F41 C22 (search for similar items in EconPapers)
Date: 2006-06-01
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Related works:
Working Paper: Real exchange rates and real interest rates: A nonlinear perspective (1999)
Working Paper: Real Exchange Rates and Real Interest Rates: a nonlinear Perspective (1999)
Journal Article: Real exchange rates and real interest rates: a nonlinear perspective (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:ctl:louvre:2006024

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