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Currency Misalignments and Exchange Rate Regimes in Emerging and Developing Countries

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Listed author(s):
  • Virginie Coudert
  • Cécile Couharde

Abstract

Pegged exchange rates are often pointed out as more prone to risk of overvaluation, because their real exchange rates have a tendency to appreciate. We check this assumption empirically over a large sample of emerging and developing countries, by using two databases for de facto classifications by Levy-Yeyati and Sturzenegger (2003 ) and by Reinhart and Rogoff (2004 ). We assess currency misalignments by estimating real equilibrium exchange rates taking into account a Balassa effect and the impact of net foreign assets. Pegged currencies are shown to be more overvalued than floating ones. Copyright © 2009 The Authors. Journal compilation © Blackwell Publishing Ltd 2009.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 17 (2009)
Issue (Month): 1 (02)
Pages: 121-136

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Handle: RePEc:bla:reviec:v:17:y:2009:i:1:p:121-136
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Find related papers by JEL classification:
  • F31 - International Economics - - International Finance - - - Foreign Exchange
  • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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  1. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
  4. Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, number 9780195211269, April.
  5. Susana Garcia Cervero & J. Humberto Lopez & Enrique Alberola Ila & Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates; Euro, Dollar, “Ins,” “Outs,” and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 99/175, International Monetary Fund.
  6. Bussiere, Matthieu & Fratzscher, Marcel, 2006. "Towards a new early warning system of financial crises," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 953-973, October.
  7. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
  8. Ilan Goldfajn & Rodrigo O. Valdés, 1999. "The Aftermath of Appreciations," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 229-262.
  9. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
  10. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2008. "How Robust are Estimated Equilibrium Exchange Rates? A Panel BEER Approach," Working Papers 2008-01, CEPII research center.
  11. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2007. "The overvaluation of Renminbi undervaluation," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 762-785, September.
  12. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment; Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 167, International Monetary Fund.
  13. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  14. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  15. Coudert, Virginie & Couharde, Cecile, 2007. "Real equilibrium exchange rate in China is the renminbi undervalued?," Journal of Asian Economics, Elsevier, vol. 18(4), pages 568-594, August.
  16. Burkart, Oliver & Coudert, Virginie, 2002. "Leading indicators of currency crises for emerging countries," Emerging Markets Review, Elsevier, vol. 3(2), pages 107-133, June.
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