Recent evidence suggests that while real exchange rates exhibit mean reversion, the reversion only sets in once a minimum "threshold" distance from the mean has been exceeded. The non-linearity has generally been attributed to costly arbitrage, which requires a minimum divergence before the...

A large body of literature finds that exporters do not pass nominal exchange rate movements fully through to destination market prices over short time horizons. This imperfect passthrough has been widely attributed to strategic "pricing-to-market", whereby exporters deliberately accept changes...