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Estimating Equilibrium Exchange Rates for Armenia and Georgia

  • Shuang Ding
  • Omar Al Shehabi

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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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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  1. 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.
  2. 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, vol. 54(5), pages 961-982.
  3. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 546-569, June.
  4. Kornélia Krajnyák & Jeromin Zettelmeyer, 1997. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Working Papers 97/149, International Monetary Fund.
  5. 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, vol. 108(1), pages 1-24, May.
  6. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. 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., vol. 14(5), pages 563-77, Sept.-Oct.
  8. Mohsin S. Khan & Ehsan U. Choudhri, 2004. "Real Exchange Rates In Developing Countries: Are Balassa-Samuelson Effects Present?," IMF Working Papers 04/188, International Monetary Fund.
  9. Égert, Balázs & Halpern, László & MacDonald, Ronald, 2004. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," CEPR Discussion Papers 4809, C.E.P.R. Discussion Papers.
  10. Menzie David Chinn & Eswar Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," IMF Working Papers 00/46, International Monetary Fund.
  11. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 97/21, International Monetary Fund.
  12. Etienne B. Yehoue & Gilles J. Dufrénot, 2005. "Real Exchange Rate Misalignment: A Panel Co-Integration and Common Factor Analysis," IMF Working Papers 05/164, International Monetary Fund.
  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. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  15. Oomes, Nienke, 2005. "Maintaining competitiveness under equilibrium real appreciation: The case of Slovakia," Economic Systems, Elsevier, vol. 29(2), pages 187-204, June.
  16. 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 0353, European Central Bank.
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