Nonlinearities and real exchange rate dynamics

Jean Imbs, Haroon Mumtaz, Morten O. Ravn, Hélène Rey

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)639-649
Number of pages11
JournalJournal of the European Economic Association
Volume1
Issue number2-3
DOIs
StatePublished - Jan 1 2003

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ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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