Real exchange rates and real interest rates: a nonlinear perspective

Frédérique Bec, Melika Ben Salem and Ronald MacDonald

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 récent 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: C22 F41 (search for similar items in EconPapers)
Pages: 18
Date: 2006-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://sites.uclouvain.be/econ/DP/REL/2006024.pdf (application/pdf)

Related works:
Journal Article: Real exchange rates and real interest rates: a nonlinear perspective (2006)
Working Paper: Real exchange rates and real interest rates: a nonlinear perspective (2006)
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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2006024

Access Statistics for this paper

More papers in Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Sebastien SCHILLINGS ().