Nonlinearities or outliers in real exchange rates?

Antonia López Villavicencio
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Antonia López Villavicencio: UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona

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Abstract: Long-lasting misalignments in the real exchange rates are sometimes explained by the presence of a nonlinear adjustment process towards the long-run equilibrium. However, while it is possible that evidence of nonlinearity exists for some real exchange rates, outliers and nonlinearity may easily be confused. This paper uses robust methods to examine and compare the behaviour of Smooth Transition Autoregressive [STAR] models for the real exchange rates of 14 countries. The results show that the evidence for nonlinearity is reduced when considering outliers. Nonlinearity is also more common among developing economies.

Keywords: Robust estimation; Smooth transition autoregressive models; Outliers; C5 Real exchange rate; Cl2; JEL classification: F31; JEL classification: F31 Cl2 C5 Real exchange rate Outliers Smooth transition autoregressive models Robust estimation (search for similar items in EconPapers)
Date: 2008-07
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Published in Economic Modelling, 2008, 25 (4), pp.714-730. ⟨10.1016/j.econmod.2007.11.001⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05455662

DOI: 10.1016/j.econmod.2007.11.001

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