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Real Exchange Rate Misalignments

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Author Info
Cristina Terra, Frederico Valladares (Université de Cergy-Pontoise, Thema and EPGE/FGV, Tendências Consultoria Integrada)

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Abstract

This paper investigates episodes of real exchange rate appreciations and depreciations for a sample of 85 countries, from 1960 to 1998. The equilibrium real exchange rate series are constructed by estimating cointegration vectors with fundamentals, and departures from it are obtained. A Markov Switching Model is used to characterize the misalignments series as stochastic autoregressive processes governed by two states corresponding to different means and variances. Three are the main findings: first, some countries present no evidence of distinct regimes for misalignment; second, for some countries, there is no RER misalignment in one the regimes; and, third, for those countries with two misalignment regimes, the appreciated regime have higher persistence than the depreciated one.

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Publisher Info
Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2009-03.

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Date of creation: 2009
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Handle: RePEc:ema:worpap:2009-03

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Related research
Keywords: real exchange rate misalignment; Markov switching model;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Charles Engel & Craig S. Hakkio, 1996. "The Distribution of Exchange Rates in the EMS," NBER Working Papers 4834, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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  6. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank. [Downloadable!]
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  7. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
  8. Garcia, Rene, 1998. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 763-88, August.
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  11. Marco Antonio Cesar Bonomo & Maria Cristina Trindade Terra, 1999. "The Political Economy of Exchange Rate Policy in Brazil: an Empirical Assessment," Revista Brasileira de Economia, Graduate School of Economics, Getulio Vargas Foundation (Brazil), vol. 53(4), April. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ferreira, Pedro Cavalcanti Gomes & Facchini, Giovanni, 2004. "Trade liberalization and industrial concentration: Evidence from Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 531, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
    Other versions:
  2. Christian Volpe Martincus & Antoni Estevadeordal, 2009. "Trade policy and specialization in developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(2), pages 251-275, July. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  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. [Downloadable!]
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