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Real Exchange Rate Misalignments

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  • Cristina Terra, Frederico Valladares

    (Université de Cergy-Pontoise, Thema and EPGE/FGV, Tendências Consultoria Integrada)

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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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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Keywords: real exchange rate misalignment; Markov switching model;

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Cited by:
  1. Antoni Estevadeordal & Christian Volpe Martincus, 2006. "Specialization and Diverging Manufacturing Structures: The Aftermath of Trade Policy Reforms in Developing Countries," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 220, Centro Studi Luca d\'Agliano, University of Milano.
  2. 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).
  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, Springer, vol. 143(1), pages 140-178, April.
  4. 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.

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