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The effects of exchange rate regimes on real exchange rate misalignment

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  • Emiliano Libman

Abstract

The literature on exchange rate regimes has paid little attention to the effects of exchange rate policies on real exchange rate misalignments. This paper contributes to filling that gap by exploring such relation empirically. Because the underlying model is probably not linear and the treated individuals differ from non-treated individuals, we rely on Matching models rather than on standard regressions. Our main finding is that pegs are associated with more overvaluation. The results are robust to different exchange rate regime classifications, misalignment indexes, and matching estimators. The evidence presented suggests that policy-makers concerned with overvaluation should avoid sticking with rigid arrangements for too long.

Suggested Citation

  • Emiliano Libman, 2018. "The effects of exchange rate regimes on real exchange rate misalignment," International Review of Applied Economics, Taylor & Francis Journals, vol. 32(1), pages 39-61, January.
    • Handle: RePEc:taf:irapec:v:32:y:2018:i:1:p:39-61
    DOI: 10.1080/02692171.2017.1331205
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    References listed on IDEAS

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    1. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
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    1. Prabheesh, K.P. & Prakash, Branesh & Vuniivi, Viliame, 2023. "Assessment of Fiji’s exchange rate," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1282-1305.
    2. Mohammad Hassanzadeh & Shahla Mousavi, 2023. "Real effective exchange rate misalignment and currency crisis in Iran," Future Business Journal, Springer, vol. 9(1), pages 1-8, December.
    3. Ugurlu, Esra Nur & Razmi, Arslan, 2023. "Political economy of real exchange rate levels," Journal of Comparative Economics, Elsevier, vol. 51(3), pages 918-940.
    4. Mahraddika, Wishnu, 2020. "Real exchange rate misalignments in developing countries: The role of exchange rate flexibility and capital account openness," International Economics, Elsevier, vol. 163(C), pages 1-24.
    5. Kadjatou Dakoure & Mahamadou Diarra & M. Idrissa Ouedraogo, 2023. "Role of the choice of exchange rate regime on real exchange rate misalignments in South Sahara African countries," International Economics and Economic Policy, Springer, vol. 20(3), pages 425-455, July.
    6. Guzman, Martin & Ocampo, Jose Antonio & Stiglitz, Joseph E., 2018. "Real exchange rate policies for economic development," World Development, Elsevier, vol. 110(C), pages 51-62.

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