Investigating nonlinearities in real exchange rate adjustment: Threshold cointegration and the dynamics of exchange rates and relative prices
Motivated by growing evidence of nonlinear mean-reverting behavior in real exchange rates, this paper investigates the underlying dynamics in the context of a threshold vector error correction model (TVECM) of nominal exchange rate and relative prices. Unlike univariate models, our nonlinear multivariate framework takes into explicit account the joint behavior and individual dynamics of the nominal exchange rate and relative prices when these two key variables are threshold cointegrated. Our empirical application unravels their relative contribution to mean reversion and underscores the importance of capturing their interactions in investigating the nonlinear adjustment toward purchasing power parity.
Year of publication: |
2010
|
---|---|
Authors: | Nakagawa, Hironobu |
Published in: |
Journal of International Money and Finance. - Elsevier, ISSN 0261-5606. - Vol. 29.2010, 5, p. 770-790
|
Publisher: |
Elsevier |
Keywords: | Real exchange rate Nominal exchange rate Purchasing power parity Mean reversion Threshold vector error correction model Threshold cointegration |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Explaining real exchange rate behavior
Nakagawa, Hironobu, (1998)
-
Nakagawa, Hironobu, (2002)
-
ECONOMICS OF STOCK-PRICE VIBRATIONS: RIDING SPECULATIVE WAVES WITHOUT SPECULATION
Ohta, Hiroshi, (2007)
- More ...