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Real Exchange Rate Misalignments

Author

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  • Cristina Terra

    (Université de Cergy-Pontoise, Thema)

  • Frederico Valladares

    (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.

Suggested Citation

  • Cristina Terra & Frederico Valladares, 2009. "Real Exchange Rate Misalignments," THEMA Working Papers 2009-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2009-03
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    2. Muntasir Murshed & Seemran Rashid, 2020. "An Empirical Investigation of Real Exchange Rate Responses to Foreign Currency Inflows: Revisiting the Dutch Disease Phenomenon in South Asia," The Economics and Finance Letters, Conscientia Beam, vol. 7(1), pages 23-46.
    3. Amir H. Mozayani & Sanaz Parvizi, 2016. "Exchange Rate Misalignment in Oil Exporting Countries (OPEC): Focusing on Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(2), pages 261-276, Spring.
    4. Banerjee, Krittika & Goyal, Ashima, 2021. "Behavioural​ equilibrium real exchange rates and misalignments: Evidence from large emerging markets," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 414-436.
    5. 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;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(1), pages 140-178, April.
    6. 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.
    7. Zouheir Abida, 2011. "Real Exchange Rate Misalignment and Economic Growth: An Empirical Study for the Maghreb Countries," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 45-61, July.
    8. Cavalcanti Ferreira, Pedro & Facchini, Giovanni, 2005. "Trade liberalization and industrial concentration: Evidence from Brazil," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(2-3), pages 432-446, May.
    9. Ali, Abdulkadir I. & Ajibola, Isaiah O. & Omotosho, Babatunde S. & Adetoba, Olutope O. & Adeleke, Abiola O., 2015. "Real exchange rate misalignment and economic growth in Nigeria," MPRA Paper 98526, University Library of Munich, Germany.
    10. Giannellis, Nikolaos & Koukouritakis, Minoas, 2013. "Exchange rate misalignment and inflation rate persistence: Evidence from Latin American countries," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 202-218.
    11. Daniel Aromí & Marcos Dal Bianco, 2014. "An Analysis of Real Exchange Rate Misalignments under Regime Shifts in Argentina," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(71), pages 40-71, December.

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    Keywords

    real exchange rate misalignment; Markov switching model;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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