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Measuring Exchange Rate Misalignment

Author

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  • Umit Ozale
  • Erinc Yeldan

    (Department of Economics, Bilkent University)

Abstract

We propose a new methodology to measure exchange rate misalignment for Turkey, which has already undergone a severe economic crisis. We estimate the real exchange rate within a time varying parameter model, where a return-to-normality assumption about the parameters are assumed. Contrary to common belief, it is found that, except the initial four months of the stabilization program, the Turkish Lira remained structurally undervalued for most of 2000. Also, we observe a pattern where the Lira has been structurally overvalued after the crisis in 1994 until 1998, and has displayed structural undervaluation after that.

Suggested Citation

  • Umit Ozale & Erinc Yeldan, 2002. "Measuring Exchange Rate Misalignment," Working Papers 0206, Economic Research Forum, revised 14 Feb 2002.
    • Handle: RePEc:erg:wpaper:0206
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    References listed on IDEAS

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    Cited by:

    1. Deniz Atasoy & Sweta C. Saxena, 2006. "Misaligned? Overvalued?. The Untold Story of the Turkish Lira," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 42(3), pages 29-45, May.
    2. Guzin BAYAR & Selman TOKPUNAR, 2013. "Turk Lirasi Reel Kuru Denge Degerinde Mi?," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 13(4), pages 405-426.
    3. Aykut Kibritcioglu & Bengi Kibritcioglu, 2004. "Real Exchange Rate Misalignment in Turkey, 1987-2003 (in Turkish)," Macroeconomics 0403006, University Library of Munich, Germany, revised 22 Apr 2004.

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