Is There Non‑linear Real Exchange Rate Adjustment for the Asian Economies?

Abstract

This study tests for non-linearities in the behaviour of U.S. dollar real exchange rates of eleven Asian economies. For this purpose, logistic and exponential smooth transition regression models are applied to quarterly data over the sample period 1973Q2-2001Q1. There is evidence of non-linearities in the behaviour of four real exchange rates where, in three of these cases, non-linearities are captured by the logistic smooth transition autoregressive model. The extent of non-linearities varies across Asian countries with India and Singapore exhibiting the sharpest transition between regimes of appreciating and depreciating real exchange rates.