7 Questions
What is the main source of nonlinearity in the adjustment of the nominal exchange rate?
The interaction of heterogeneous agents in the foreign exchange market at the microstructural level.
What does the text say about the behavior of the log-level of the real exchange rate near its equilibrium level?
It is close to a random walk.
What does the text say about the speed of mean reversion of the real exchange rate for larger shocks?
The speed of mean reversion is faster for larger shocks.
What is the range of half-lives of shocks to the real exchange rates near their equilibrium levels according to the text?
3-5 years
What is the effect of official intervention in the foreign exchange market on the adjustment of the nominal exchange rate?
It has a greater impact on short-run exchange rate movements as the nominal exchange rate moves further away from its perceived or actual underlying equilibrium level.
What are the potential sources of nonlinearities in international goods arbitrage mentioned in the text?
Transport costs, tariffs, and non-tariff barriers
What is the implication of assuming instantaneous goods arbitrage at the edges of the band?
The thresholds become reflecting barriers
Explore the concept of nonlinear adjustment towards Purchasing Power Parity through discussions on regressions, panel data, longitudinal data, and Monte Carlo simulation in G5 countries. Understand the impact of factors like transport costs, tariffs, and non-tariff barriers on international goods arbitrage and exchange rate adjustments.
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