In this paper we introduce a new nonlinear Markov-STAR model to capture both the markov switching and smooth transition dynamics for real exchange rates. The Markov switching part captures the effect of time variations of the equilibrium exchange rates, while the smooth transition part models...

This study analyzes the dynamics between real effective exchange rates and current accounts from a novel perspective. We start by dissecting long-run and time-varying short-run dynamics as well as causalities between both variables. Following this, we extend our framework by including short-term...