Fiscal deficits and mean reversion in real exchange rates.

Gu, Jingping; Li, Qi; Yang, Jian
Economics Letters. Feb. 2013, Vol. 118 Issue 2, pp. 300-303.

The mean reversion of real exchange rates in G5 countries depends on both countries’ fiscal deficits/surplus in a nonlinear way. When the fiscal policy pushes the real exchange rate to be deviated further away from the equilibrium level, the mean reversion process is faster.