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Estimating Equilibrium Exchange Rates for Armenia and Georgia

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  • Shuang Ding
  • Omar Al Shehabi

Abstract

The significant real exchange rate appreciation in Armenia and Georgia since 2003, coupled with persistent current account deficits, raises the question of whether real exchange rates have become overvalued. This paper seeks to identify possible exchange rate misalignment by applying the behavioral equilibrium exchange rate approach, complemented by an analysis of the traditional competitiveness indicators. The results indicate an undervaluation of the Armenian dram and no significant misalignment of the Georgian lari in 2006.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/110.

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Length: 21
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/110

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Keywords: Exchange rate appreciation; Current account deficits; exchange rate; real exchange rate; exchange rates; current account balance; terms of trade; exchange rate misalignment; trading partners; exchange rate level; real exchange rate appreciation; real exchange rates; transition economies; equilibrium exchange rate; real effective exchange rates; effective exchange rates; exchange rate index; exchange rate regimes; transition countries; currency appreciation; foreign exchange; exchange rate adjustment; exchange rate determination; current account deficit; real exchange rate misalignment; exchange rate devaluation; trading partner; nominal exchange rate; transition period; exchange rate misalignments; real exchange rate overvaluation; domestic prices; current accounts; trade flows; real exchange rate movement; exchange rate behavior; exchange rate movement; real exchange rate behavior; elasticity of trade; factor analysis; import price; exchange rate management; trade restriction; exchange rate overvaluation; restriction index; trade protection; producer price index;

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  1. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
  2. Kornélia Krajnyák & Jeromin Zettelmeyer, 1998. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 309-362, June.
  3. Nienke Oomes, 2005. "Maintaining Competitiveness Under Equilibrium Real Appreciation," IMF Working Papers 05/65, International Monetary Fund.
  4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  5. Oomes, Nienke, 2005. "Maintaining competitiveness under equilibrium real appreciation: The case of Slovakia," Economic Systems, Elsevier, Elsevier, vol. 29(2), pages 187-204, June.
  6. Menzie D. Chinn, 2005. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," NBER Working Papers 11521, National Bureau of Economic Research, Inc.
  7. Menzie D. Chinn & Hiro Ito, 2005. "Current Account Balances, Financial Development and Institutions: Assaying the World "Savings Glut"," NBER Working Papers 11761, National Bureau of Economic Research, Inc.
  8. Maeso-Fernandez, Francisco & Osbat, Chiara & Schnatz, Bernd, 2004. "Towards the estimation of equilibrium exchange rates for CEE acceding countries: methodological issues and a panel cointegration perspective," Working Paper Series, European Central Bank 0353, European Central Bank.
  9. Ehsan U. Choudhri & Mohsin S. Khan, 2005. "Real Exchange Rates in Developing Countries: Are Balassa-Samuelson Effects Present?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 2.
  10. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series wp793, William Davidson Institute at the University of Michigan.
  11. Etienne B. Yehoue & Gilles J. Dufrénot, 2005. "Real Exchange Rate Misalignment," IMF Working Papers 05/164, International Monetary Fund.
  12. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1251-71, November.
  13. International Monetary Fund, 2003. "Competitiveness in the Baltics in the Run-Up to EU Accession," IMF Staff Country Reports 03/114, International Monetary Fund.
  14. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, Elsevier, vol. 59(1), pages 47-76, January.
  15. Mohsin S. Khan & Ehsan U. Choudhri, 2004. "Real Exchange Rates in Developing Countries," IMF Working Papers 04/188, International Monetary Fund.
  16. Michel Aglietta & Camille Baulant & Sandra Moatti, 2003. "Exchange Rate Management in Central Europe and the Debate on Exchange Rate Regimes," Revue économique, Presses de Sciences-Po, Presses de Sciences-Po, vol. 54(5), pages 961-982.
  17. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
  18. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 97/21, International Monetary Fund.
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Citations

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Cited by:
  1. Zuzana Brixiova & Balázs Égert & Thouraya Hadj Amor Essid, 2013. "Working Paper 187 - The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia," Working Paper Series, African Development Bank 991, African Development Bank.
  2. Gan, Christopher & Ward, Bert & Ting, Su Ting & Cohen, David A., 2013. "An empirical analysis of China's equilibrium exchange rate: A co-integration approach," Journal of Asian Economics, Elsevier, Elsevier, vol. 29(C), pages 33-44.
  3. Zuzana Brixiova & Balázs Égert & Thouraya Hadj Amor Essid, 2014. "The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia," William Davidson Institute Working Papers Series wp1068, William Davidson Institute at the University of Michigan.
  4. Hassan Suleiman & Zahid Muhammad, 2011. "The real exchange rate of an oil exporting economy: Empirical evidence from Nigeria," FIW Working Paper series, FIW 072, FIW.
  5. Fakhri, Hasanov & Khudayar, Hasanli, 2011. "Why had the Money Market Approach been irrelevant in explaining inflation in Azerbaijan during the rapid economic growth period?," MPRA Paper 29559, University Library of Munich, Germany.
  6. Fakhri Hasanov, 2010. "The Impact of Real Oil Price on Real Effective Exchange Rate: The Case of Azerbaijan," Discussion Papers of DIW Berlin 1041, DIW Berlin, German Institute for Economic Research.
  7. Rimgailaite, Ramune, 2012. "Exchange rate modelling for Lithuania and Switzerland," MPRA Paper 43451, University Library of Munich, Germany.
  8. Ho-don Yan & Cheng-lang Yang, 2012. "Does an Undervalued Currency Merit Economic Growth? – Evidence from Taiwan," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(1), pages 37-57, March.
  9. Volkhart Vincentz, 2008. "Trade Policy and Georgian Exports," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 272, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).

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