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Real Exchange Rate Misalignment

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Author Info

  • Etienne B. Yehoue
  • Gilles J. Dufrénot

Abstract

We combine some newly developed panel co-integration techniques and common factor analysis to analyze the behavior of the real exchange rate (RER) in a sample of 64 developing countries. We study the dynamic of the RER with its economic fundamentals: productivity, the terms of trade, openness, and government spending. We derive a number of common factors that explain the dynamic of the RER in our sample. We find that while some fundamentals such as productivity, terms of trade, and openness are strongly related to these common factors in low-income countries, no such link is found for the middle-income countries. We also derive the misalignment indices, which seem to reproduce recent episodes of overvaluation and undervaluation in a number of countries.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/164.

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Length: 39
Date of creation: 01 Aug 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/164

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Related research

Keywords: Developing countries; Economic models; Exchange rate realignments; Real effective exchange rates; exchange rate; real exchange rate; confidence interval; exchange rates; effective exchange rate; real effective exchange rate; statistics; factor analysis; time series; equilibrium exchange rate; econometrics; equation; real exchange rates; currency appreciation; samples; real exchange rate misalignment; linear time trend; linear time; exchange rate misalignment; currency depreciation; logarithm; degree of heterogeneity; degree of homogeneity; exchange rate policy; empirical model; independent variables; finite sample; foreign exchange; exchange rate deviations; correlation; mean group; optimization; linear regression; number of regressors; cointegration; exchange rate dynamics; financial statistics; monte carlo simulations; mean group estimation; survey; diagonal matrix; data analysis; covariance; vector autoregression; exchange rate management; real exchange rate dynamics; estimation method; foreign exchange market; consistent estimate;

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References

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  11. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
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  14. César A. Calderón, 2004. "Real exchange rates in the long and short run: a panel co-integration approach," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 19(2), pages 41-83, December.
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Citations

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Cited by:
  1. Elbadawi, Ibrahim A. & Kaltani, Linda & Schmidt-Hebbel, Klaus, 2007. "Post-conflict aid, real exchange rate adjustment, and catch-up growth," Policy Research Working Paper Series 4187, The World Bank.
  2. Couharde, Cécile & Coulibaly, Issiaka & Damette, Olivier, 2013. "Anchor currency and real exchange rate dynamics in the CFA Franc zone," Economic Modelling, Elsevier, vol. 33(C), pages 722-732.
  3. Issiaka Coulibaly & Blaise Gnimassoun, 2012. "Optimality of a monetary union : New evidence from exchange rate misalignments in West Africa," EconomiX Working Papers 2012-37, University of Paris West - Nanterre la Défense, EconomiX.
  4. Aliyu, Shehu Usman Rano, 2008. "Exchange Rate Volatility and Export Trade in Nigeria: An Empirical Investigation," MPRA Paper 13490, University Library of Munich, Germany, revised 17 Feb 2009.
  5. Diego Bastourre & Jorge Carrera & Javier Ibarlucia & Mariano Sardi, 2012. "Common Drivers in Emerging Market Spreads and Commodity Prices," BCRA Working Paper Series 201257, Central Bank of Argentina, Economic Research Department.
  6. Marcos Rocha & Fernando Barbi, 2011. "Determinantes doDesalinhamento Cambial: Uma análise comcointegração em painel," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 112, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. Shuang Ding & Omar Al Shehabi, 2008. "Estimating Equilibrium Exchange Rates for Armenia and Georgia," IMF Working Papers 08/110, International Monetary Fund.
  8. niaz ahmad mohd, Naseem & yusop, Zulkornain & masron, Tajul ariffin, 2009. "How did the Malaysian real exchange rate misalign during the 1997 Asian crisis?," MPRA Paper 44922, University Library of Munich, Germany.
  9. Megumi Kubota, . "Real Exchange Rate Misalignments: Theoretical Modelling and Empirical Evidence," Discussion Papers 09/24, Department of Economics, University of York.
  10. Jesús Ferreyra & Jorge Salas, 2006. "The Equilibrium Real Exchange Rate in Peru: BEER Models and Confidence Band Building," Working Papers 2006-006, Banco Central de Reserva del Perú.
  11. Mahvash Saeed Qureshi, 2008. "Africa's Oil Abundance and External Competitiveness," IMF Working Papers 08/172, International Monetary Fund.
  12. Yougbaré, Lassana, 2011. "Exchange rate arrangements and misalignments: contrasting words and deeds," MPRA Paper 32362, University Library of Munich, Germany.
  13. Jorge Carrera & Romain Restout, 2008. "Long Run Determinants of Real Exchange Rates in Latin America," Post-Print halshs-00276402, HAL.
  14. Shehu Usman Rano, Aliyu, 2007. "Real Exchange Rate Misalignment: An Application of Behavioral Equilibrium Exchange Rate (BEER) to Nigeria," MPRA Paper 10376, University Library of Munich, Germany.
  15. Bassem Kamar & Jean-Etienne Carlotti & Russell C. Krueger, 2009. "Establishing Conversion Values for New Currency Unions," IMF Working Papers 09/184, International Monetary Fund.
  16. nnamdi, Kelechi & ifionu, Ebele, 2013. "Exchange rate volatility and exchange rate uncertainty in Nigeria: a financial econometric analysis (1970- 2012)," MPRA Paper 48316, University Library of Munich, Germany, revised 2013.
  17. Atsushi Iimi, 2006. "Exchange Rate Misalignment," IMF Working Papers 06/140, International Monetary Fund.

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