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Real Exchange Rate Misalignments

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  • Frederico Valladares
  • Cristina Terra

Abstract

This paper characterizes episodes of real appreciations and depreciations for a sample of 85 countries, approximately from 1960 to 1998. First, the equilibrium real exchange rate series are constructed for each country using Goldfajn and Valdes (1999) methodology (cointegration with fundamentals). Then, departures from equilibrium real exchange rate (misalignments) are obtained, and a Markov Switching Model is used to characterize the misalignments series as stochastic autoregressive processes governed by two states representing different means. Three are the main results we find: first, no evidence of different regimes for misalignment is found in some countries, second, some countries present one regime of no misalignment (tranquility) and the other regime with misalignment (crisis), and, third, for those countries with two misalignment regimes, the lower mean misalignment regime (appreciated) have higher persistence that the higher mean one (depreciated)

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 191.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:191

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Keywords: RER misalignment; PPP; Markov Switching Model;

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References

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Cited by:
  1. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2010. "Exchange rate pass-through: A generalization," Journal of Mathematical Economics, Elsevier, vol. 46(4), pages 493-504, July.
  2. Christian Volpe Martincus & Andrea Molinari, 2007. "Regional Business Cycles and National Economic Borders: What Are the Effects of Trade in Developing Countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(1), pages 140-178, April.
  3. Ferreira, Pedro Cavalcanti Gomes & Facchini, Giovanni, 2004. "Trade liberalization and industrial concentration: Evidence from Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 531, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Antoni Estevadeordal & Christian Volpe Martincus, 2006. "Specialization and Diverging Manufacturing Structures: The Aftermath of Trade Policy Reforms in Developing Countries," Development Working Papers 220, Centro Studi Luca d\'Agliano, University of Milano.

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