Slow adjustment of real exchange rate towards equilibrium in linear models has long puzzled researchers, stimulating the adoption of nonlinear models. The exponential smooth transition model has been particularly successful, providing faster adjustment speeds. This paper discusses some of its...

Two different approaches intend to resolve the 'puzzling' slow convergence to purchasing power parity (PPP) reported in the literature [see Rogoff (1996), Journal of Economic Literature, Vol. 34.] On the one hand, there are models that consider a non-linear adjustment of real exchange rate to...