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Nonlinearities and Real Exchange Rate Dynamics

Author

Listed:
  • Jean Imbs

    (London Business School and CEPR,)

  • Haroon Mumtaz

    (London Business School,)

  • Morten O. Ravn

    (London Business School and CEPR,)

  • Hélène Rey

    (Princeton, CEPR, and NBER,)

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. (JEL: F36, F41, C43) Copyright (c) 2003 The European Economic Association.

Suggested Citation

  • Jean Imbs & Haroon Mumtaz & Morten O. Ravn & Hélène Rey, 2003. "Nonlinearities and Real Exchange Rate Dynamics," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 639-649, 04/05.
    • Handle: RePEc:tpr:jeurec:v:1:y:2003:i:2-3:p:639-649
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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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