Real exchange rates and real interest differentials: implications of nonlinear adjustment in real exchange rates

• 成果类型: Article
• 署名作者: Nakagawa, H
• 署名单位: Aoyama Gakuin University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/S0304-3932(02)00102-2
• 发表日期: 2002
• 页码: 629-649
• 关键词: Real exchange rates; real interest differentials; threshold nonlinearity

摘要

This paper investigates the relationship between real exchange rates and real interest differentials. While sticky-price exchange-rate theories predict a relationship, empirical evidence on the hypothesized link has proved elusive. Our conjecture is that the empirical difficulty is due to a failure to recognize nonlinearity in real exchange rate adjustment. When we introduce threshold nonlinearity into a traditional model to take account of a transaction cost-induced 'band of inaction' for price adjustment, only outside the band will the real exchange rate exhibit mean reversion and bear an association with real interest differentials. Our estimated nonlinear models provide evidence supporting this view. (C) 2002 Elsevier Science B.V. All rights reserved.