Article

 

Exchange Rates and Non-Linear Dynamics in Output: Evidence from Bulgaria (p.91-115)

by

Ilir Miteza, Department of Social Sciences, University of Michigan-Dearborn

Keywords : Exchange rates, devaluation, output growth, smooth transition regression, transition economies, Bulgaria, EU accession

JEL classification : F31

Abstract

This paper assesses the effect of changes in real exchange rates on output growth by applying a smooth transition regression (STR) model in the case of Bulgaria – a European Union accession country. The nonlinear estimation technique employed here offers more flexibility in terms of allowing for possible asymmetric effects of real appreciations on growth, contingent upon the behavior of relevant economic variables. The nonlinear model reveals that real appreciations have helped growth in Bulgaria for most of the period 1994-2004. Real appreciations can turn contractionary only under excessive real money growth, which has occurred only sporadically.