Real Exchange Rate Persistence and Country Characteristics
This paper examines the persistence of real exchange rates across the world. We employ univariate time series techniques on a country-by-country basis allowing for deterministic structural breaks and nonlinearities in the adjustment process. Our findings suggest that bilateral exchange rates and industrial countries display the highest rates of persistence. We retrieve evidence indicating that higher inflation, nominal exchange rate volatility, trade openness and proximity to reference country are associated with faster rates of real exchange rate convergence. Conversely, international financial integration is only found to be a significant factor at the country group level, with differential effects across cohorts.