Asymmetric response of domestic production to exchange rate changes: Evidence from southeast Asian countries

Abstract

This study explores the asymmetric effects of real effective exchange rate variation on domestic output in nine South East Asian nations. The study is the first thorough study on this issue for these countries. The results show that exchange rate fluctuations have asymmetric long‐run and short‐run effects on production in most nations. However, the findings vary across nations. Appreciation has a contractionary effect on production in most countries, while depreciation has an expansionary effect. In certain economies, an appreciation boosts domestic output whereas a depreciation diminishes it. Such conclusions can only be reached if appreciations and depreciations are separated, using non‐linear models.