Asymmetry Effects of Exchange Rate Changes on Domestic Production in Emerging Countries

Abstract

Previous studies that tried to assess the impact of exchange rate changes on domestic production of emerging economies assumed that the effects are symmetric and used a linear model to provide mixed results. In this article, we try to determine whether exchange rate changes could have asymmetric effects which amounts to using a nonlinear model. We find that the nonlinear model performs much better than the linear model and yields results that support asymmetry effects of exchange rate changes on domestic production in many of the countries in our sample, both in the short run and in the long run.

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