Non-linear and non-symmetric exchange-rate adjustment

Evidence from medium-and high-inflation countries

Michael G. Arghyrou, Virginie Boinet, Christopher Martin

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

This paper analyses a model of non-linear exchange rate adjustment that extends the literature by allowing asymmetric responses to over- and under-valuations. Applying the model to Greece and Turkey, we find that adjustment is asymmetric and that exchange rates depend on the sign as well as the magnitude of deviations, being more responsive to over-valuations than under-valuations. Our findings support and extend the argument that non-linear models of exchange rate adjustment can help to overcome anomalies in exchange rate behaviour. They also suggest that exchange rate adjustment is non-linear in economies where fundamentals models work well.

Original languageEnglish
Pages (from-to)38-56
Number of pages19
JournalJournal of Economics and Finance
Volume30
Issue number1
DOIs
Publication statusPublished - Mar 2006

Keywords

  • Exchange rate
  • real exchange rate
  • purchase power parity
  • nominal exchange rate
  • equilibrium

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Non-linear and non-symmetric exchange-rate adjustment : Evidence from medium-and high-inflation countries. / Arghyrou, Michael G.; Boinet, Virginie; Martin, Christopher.

In: Journal of Economics and Finance, Vol. 30, No. 1, 03.2006, p. 38-56.

Research output: Contribution to journalArticle

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