Non Linear Adjustment in the MLR Condit...
Nation: Saudi Arabia
This paper investigates the long-run equilibrium relationship between real net exports and exchange rate in Morocco by threshold cointegration test. The threshold cointegration approach provides clear evidence of the cointegration relationship characterized by asymmetric adjustment, introduced by Enders and Siklos (2001). By allowing for asymmetric adjustment, we obtain the results showing the stability of the Marshall-Lerner-Robinson MLR condition. In particular, the estimated results show that the adjustment process is persistent toward equilibrium above an appropriately threshold parameter, whereas the adjustment process toward equilibrium quickly converges below the estimated threshold. This finding indicates that the deviations from equilibrium resulting from increases in real effective exchange rate (i.e. devaluation) are highly persistent, but the deviations from equilibrium resulting from decreases in real effective exchange rate (i.e. reevaluation) converge quickly toward equilibrium.