Non-Linearities and Real Exchange Rate Dynamics

Jean Imbs, Haroon Mumtaz, Morten Ravn and Helene Rey
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Haroon Mumtaz: London Business School

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Abstract: We confirm the presence of substantial nonlinearities in real exchange rate dynamics at the sectoral level. There exists zones where arbitrage is not profitable because of transaction costs, and thus mean reversion is inexistent. We compute the speed of mean reversion of sector specific real exchange rates, conditional on the existence of arbitrage as implied by our nonlinear estimations, and relate them to plausible economic determinants such as tradability and exchange rate volatility.

Keywords: Non-Linearities; Exchange Rates; Transport costs (search for similar items in EconPapers)
Date: 2003-04
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Citations: View citations in EconPapers (15)

Published in Journal of the European Economic Association, 2003, 1 (2-3), pp.639-649. ⟨10.1162/154247603322391279⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00612596

DOI: 10.1162/154247603322391279

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