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Structural breaks in the real exchange rate adjustment mechanism

Laurence Copeland () and Saeed Heravi

Applied Financial Economics, 2009, vol. 19, issue 2, 121-134

Abstract: We show that the behaviour of the real exchange rates of the UK, Germany, France and Japan has been characterized by structural breaks, which changed the adjustment mechanism. In the context of a Time-Varying Smooth Transition Autoregression (TV-STAR) of the kind introduced by Lundbergh et al. (2003), we show that the real exchange rate process shifted in the aftermath of Black Wednesday in the case of pound, in 1984/85 in the case of franc and, more tentatively, during the Asian crisis of 1997/98 in the case of yen.

Date: 2009
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Working Paper: Structural Breaks in the Real Exchange Rate Adjustment Mechanism (2006) Downloads
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DOI: 10.1080/09603100701765216

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Handle: RePEc:taf:apfiec:v:19:y:2009:i:2:p:121-134