REAL EXCHANGE RATE DYNAMICS IN TRANSITION ECONOMIES: A NONLINEAR ANALYSIS

This article examines the behaviour of the real exchange rates for 18 transition economies using nonlinear models. We find strong evidence of nonlinearities in 16 of the 18 countries. Contrary to widely held belief that the behaviour of real exchange rates should exhibit symmetrical adjustment for deviations above and below its equilibrium level, we find strong evidence of asymmetrical adjustment in 12 of the 16 countries for which the null hypothesis of linearity is rejected. Applying nonlinear unit root tests reveals evidence of stationarity in all the cases except for Poland. Copyright (c) 2012 John Wiley & Sons, Ltd.