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Real Exchange Rate Misalignment in Jordan: The Permanent Equilibrium Approach

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  • Noura Abu Asab

Abstract

This study attempts to measure the real exchange rate misalignment in Jordan from 1980 to 2014. We examine the role of adopting the pegged exchange rate system to the US in 1995 in limiting/increasing misalignment. Applying the Johansen approach, a cointegrating relationship is found between the real exchange rate and a number of economic fundamentals that influence the long-run real exchange rate. Over a long examined period of exchange rate fixity, the real exchange rate is kept depreciated except after 2006-2008 over which the appreciation of the real exchange rate is noted. However, after 2011 misalignment receded as the real exchange rate matched the equilibrium real exchange rate. An attempt is also made to model the nexus between the growth of per capita income and misalignment. The exchange rate misalignment is found to significantly decrease the economic growth.

Suggested Citation

  • Noura Abu Asab, 2017. "Real Exchange Rate Misalignment in Jordan: The Permanent Equilibrium Approach," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(3), pages 29-37, March.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:3:p:29-37
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    References listed on IDEAS

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    More about this item

    Keywords

    real exchange rate; misalignment; cointegration; fixed exchange rate;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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