Persistent misalignments of the European exchange rates : some evidence from nonlinear cointegration ∗ Gilles DUFRENOT † Laurent MATHIEU ‡ Val´ erie MIGNON § Anne PEGUIN-FEISSOLLE ¶ December 2002 Abstract This paper investigates the asymmetric and persistent adjustment of the Euro- pean real exchange rates using the framework of nonlinear cointegration. We explain the episodes of slow mean-reversion dynamics over the period from 1979 to 1999. A test of unit root against STAR cointegration is proposed and we present some complete estimations and stochastic simulations of ESTAR models. We conclude to the presence of effective nonlinear adjustment during the moving of the currencies to their long-run fundamental equilibrium exchange rate value. Keywords : Nonlinear cointegration - Equilibrium exchange rates - STAR models - Asymmetry JEL classification : C32, C51, F31, F49 * Corresponding author: Anne P´ eguin-Feissolle, GREQAM, Centre de la Vieille Charit´ e, 2 rue de la Charit´ e, 13002 Marseille, France, tel: +33.4.91.14.07.35, fax: +33.4.91.90.02.27, Email: peguin@ehess.cnrs-mrs.fr † ERUDITE, Universit´ e Paris 12 et GREQAM-CNRS, 2 rue de la Vieille Charit´ e, 13002 Marseille, France ‡ MODEM, Universit´ e Paris 10 et C3ED, Universit´ e de Versailles, UFR de Saint-Quentin en Yvelines, 47 boulevard Vauban, 78280, Guyancourt. § THEMA, Universit´ e Paris 10 - Facult´ e de Sciences Economiques, 200 avenue de la R´ epublique, 92001 Nanterre Cedex, France ¶ GREQAM-CNRS, Centre de la Vieille Charit´ e, 2 rue de la Vieille Charit´ e, 13002 Marseille, France 1