On the Relation between Domestic Output and Exchange Rates in 68 Countries: An Asymmetry Analysis

Abstract

In an effort to engage in the most comprehensive analysis of the asymmetric effects of exchange rate changes on domestic production, we concentrate on bivariate linear and nonlinear models where domestic output is regressed on the real effective exchange rate. By using annual data from each of the 68 countries in our sample, the findings favour the nonlinear model and nonlinear adjustment of the exchange rate. Exchange rate changes are shown to have short-run asymmetric effects in almost all models. However, the short-run effects translate into long-run asymmetric effects in only 24 countries, though the findings are country-specific.