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Asymmetric Nonlinear Mean Reversion in Real Effective Exchange Rates: Evidence from Sub-Saharan Africa
Jönköping University, Jönköping International Business School, JIBS, Economics. Department of Applied Statistics, College of Business and Economics, University of Rwanda, Kigali, Rwanda.ORCID iD: 0000-0001-6611-4762
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper evaluates the purchasing power parity (PPP) theory in a panel of Sub-Saharan African (SSA) countries. The study applies unit root tests that are based on exponential smooth transition autoregressive (ESTAR) models to account for nonlinearities and asymmetries in real exchange rate adjustment towards its equilibrium (mean) value. Nonlinearities and asymmetries are very relevant for these countries and are potentially due to transaction costs, trade barriers and other market frictions, and frequent official interventions in the foreign exchange market. Results indicate that once nonlinearities and asymmetries are taken into account there is more empirical support for the PPP theory in SSA.

National Category
Economics Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:hj:diva-39447OAI: oai:DiVA.org:hj-39447DiVA, id: diva2:1206309
Note

An earlier version of this article was published in The Journal of Economic Asymmetries.

Available from: 2018-05-16 Created: 2018-05-16 Last updated: 2018-05-16
In thesis
1. Asymmetry and multiscale dynamics in macroeconomic time series analysis
Open this publication in new window or tab >>Asymmetry and multiscale dynamics in macroeconomic time series analysis
2018 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of three independent articles preceded by an introductory chapter. The first two articles focus on exchange rate dynamics in emerging market and developing economies, taking into account nonlinearities and asymmetries which are relevant for these countries and are potentially due to (i) transaction costs and other market frictions, and (ii) official intervention in the foreign exchange market. The third article is devoted to the analysis of the effects of monetary policy at different time horizons.

The first article evaluates the purchasing power parity (PPP) theory in a panel of Sub-Saharan African countries. Unit root tests that are based on exponential smooth transition autoregressive (ESTAR) models are applied to account for nonlinearities and asymmetries in real exchange rate adjustment towards its equilibrium (mean) value. The results indicate empirical support for the PPP theory.

The second article examines the relationship between current account adjustment and exchange rate flexibility in a panel of emerging market and developing economies. The purpose of this article is to (i) obtain a measure of exchange rate flexibility that considers autoregressive conditional heteroscedasticity and possible asymmetric responses of the exchange rate to shocks, and (ii) apply suitable dynamic panel data estimators to investigate this relationship. The results indicate that more flexible exchange rates are associated with faster current account adjustment.

By means of wavelets the third article investigates the liquidity effect and the long-run neutrality of money at detailed timescales using time series data for Sweden and the US. The results indicate a significant liquidity effect at horizons of one to four years, but there is no evidence of monetary neutrality.

Place, publisher, year, edition, pages
Jönköping: Jönköping University, Jönköping International Business School, 2018. p. 29
Series
JIBS Dissertation Series, ISSN 1403-0470 ; 122
National Category
Economics Probability Theory and Statistics
Identifiers
urn:nbn:se:hj:diva-39452 (URN)978-91-86345-84-6 (ISBN)
Public defence
2018-06-13, B1014, Jönköping International Business School, Jönköping, 10:00 (English)
Opponent
Supervisors
Available from: 2018-05-16 Created: 2018-05-16 Last updated: 2018-05-16Bibliographically approved

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Habimana, Olivier

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CiteExportLink to record
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Citation style
  • apa
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