The paper employs a simple threshold model of US bilateral real exchange rate dynamics. The econometric results appear consistent with the existence of a 'neutral band'. Real exchange rates seem to revert to purchasing power parity (PPP) levels only outside the neutral band.

Employing the Structural Time Series Model (STSM) approach suggested by Harvey (1997), and based on annual data for the UK from 1967-2002, this paper reiterates the importance of using a stochastic rather than a linear deterministic trend formulation when estimating energy demand models, a...