Nonlinear adjustment of the real exchange rate towards its equilibrium value: A panel smooth transition error correction modelling

Sophie Béreau (), Antonia López Villavicencio and Valérie Mignon
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Sophie Béreau: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Antonia López Villavicencio: UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona
Valérie Mignon: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'études prospectives et d'informations internationales

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Abstract: We study the nonlinear dynamics of the real exchange rate towards its behavioral equilibrium value (BEER) using a Panel Smooth Transition Regression model framework. We show that the real exchange rate convergence process in the long run is characterized by nonlinearities for emerging economies, whereas industrialized countries exhibit a linear pattern. Moreover, there exists an asymmetric behavior of the real exchange rate when facing an over-or an undervaluation of the domestic currency. Finally, our results suggest that the real exchange rate may be unable to unwind alone global imbalances.

Keywords: Panel Vector Error Correction Model; Panel Smooth Transition Regression; BEER model; Equilibrium exchange rate (search for similar items in EconPapers)
Date: 2010-01
Note: View the original document on HAL open archive server: https://hal.science/hal-05455673v1
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Published in Economic Modelling, 2010, 27 (1), pp.404-416. ⟨10.1016/j.econmod.2009.10.007⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05455673

DOI: 10.1016/j.econmod.2009.10.007

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