Nonlinearities in the real exchange rates: new evidence from developed and developing countries
Yamin Ahmad,
Ming Chien Lo and
Olena Staveley-O’Carroll
Applied Economics, 2019, vol. 51, issue 25, 2731-2743
Abstract:
This paper investigates nonlinearities in the dynamics of real exchange rates. We use Monte Carlo simulations to establish the size properties of the Teräsvirta-Anderson test, when the dynamics of the real exchange rate is influenced by an exogenous process. In addition, we show that a modified nonlinearity test, which includes additional right-hand-side variables, performs much better than the original in both Monte Carlo exercises and in the actual data on 1431 bilateral real exchange rate series. Finally, we investigate the dynamics of the real exchange rate for both developed and developing countries using the modified test for the recent floating period. In general, the results find a greater incidence of nonlinear dynamics for developing country real exchange rates.
Date: 2019
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Working Paper: Nonlinearities in the Real Exchange Rates: New Evidence from Developed and Developing Countries (2018) 
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Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:51:y:2019:i:25:p:2731-2743
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DOI: 10.1080/00036846.2018.1558354
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