Non Linear Adjustment in the MLR Condition: Evidence from Threshold Cointegration

Hassan Ghassan ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the long-run equilibrium relationship between the real net exports and the exchange rate in Moroccan economy by the threshold cointegration test. This approach, introduced by Enders and Siklos (2001), provides clair evidence of the cointegration relationship characterized by an asymmetric adjustment. By allowing for this asymmetry, we obtain the results showing the stability of the Marshall-Lerner-Robinson (MLR) condition. In particular, the estimated results indicate the the adjustment process is persistent toward equilibrium above an appropriately threshold parameter, whereas the adjustment process toward equilibrium quickly converges below the estimated threshold. This finding indicates that the deviations from equilibrium resulting from increases in real effective exchange rate (i.e. devaluation) are highly persistent, but the deviations from equilibrium resulting from decreases in real effective exchange rate (i.e. reevaluation) converge quickly toward equilibrium.

Keywords: MLR condition; Effective exchange rate; Threshold cointegration; Morocco. (search for similar items in EconPapers)
JEL-codes: C5 F4 (search for similar items in EconPapers)
Date: 2009
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Published in Journal of Economic Cooperation and Development 3.30(2009): pp. 63-74

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