Nonlinear Dynamics of Real Exchange Rates for Sectoral Data

초록

This paper reexamines the convergence issue by contrasting the half-lives of deviations from purchasing power parity across traded and nontraded goods in real exchange rate models with nonlinear dynamics. More specifically, we employ the exponential smooth transition autoregressive model to investigate nonlinear dynamics of real exchange rates. Our empirical results show that the speed of adjustment coefficients for the traded goods are faster than those for general price and for nontraded goods, implying stronger nonlinear adjustment toward parity.