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Nonlinear adjustment in the real dollar–euro exchange rate: The role of the productivity differential as a fundamental

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  • Camarero, Mariam
  • Ordóñez, Javier

Abstract

In this paper we analyze the influence of productivity differentials in the dynamics of the real dollar–euro exchange rate. Using nonlinear procedures for the estimation and testing of ESTAR models during the period 1970–2009 we find that the dollar–euro real exchange rate shows nonlinear mean reversion towards the fundamentals represented by the productivity differential. In addition, we provide evidence about the ability of this variable to capture the overvaluation and undervaluation of the dollar against the euro.

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  • Camarero, Mariam & Ordóñez, Javier, 2012. "Nonlinear adjustment in the real dollar–euro exchange rate: The role of the productivity differential as a fundamental," Economic Modelling, Elsevier, vol. 29(2), pages 444-449.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:2:p:444-449
    DOI: 10.1016/j.econmod.2011.12.005
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    Cited by:

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    More about this item

    Keywords

    Nonlinearities; Real exchange rate; Productivity differential fundamental;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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