Large Data Sets, Nonlinearity and the Speed of Adjustment to Real Exchange Rate Shocks

Hyeyoen Kim ()
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Hyeyoen Kim: economics dept - University of Leicester

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Abstract: A well known puzzle in international finance concerns the observed very slow speeds of adjustment of real exchange rates in response to shocks. In this paper, we explore whether allowing for a wide range of influences on the real exchange rate in a nonlinear framework can help resolve this puzzle. Using recently proposed econometric methods for summarising very large macroeconomic data sets into a small number of observable factors, we find that there is a long-run relationship between these factors and real exchange rates. When put into a nonlinear framework, we find that allowing for the effects of macroeconomic factors dramatically increases the measured speed of adjustment of the real exchange rate.

Keywords: Social; Sciences; &; Humanities (search for similar items in EconPapers)
Date: 2011-02-02
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Published in Applied Economics, 2011, pp.1. ⟨10.1080/00036846.2010.513676⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00665456

DOI: 10.1080/00036846.2010.513676

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