Exchange Rate Misalignment

Author : Richard C. Marston
Publisher : University of Chicago Press
Page : 332 pages
File Size : 48,5 Mb
Release : 2008-04-15
Category : Business & Economics
ISBN : 9780226507255

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Misalignment of Exchange Rates by Richard C. Marston Pdf

Economists writing on flexible exchange rates in the 1960s foresaw neither the magnitude nor the persistence of the changes in real exchange rates that have occurred in the last fifteen years. Unexpectedly large movements in relative prices have lead to sharp changes in exports and imports, disrupting normal trading relations and causing shifts in employment and output. Many of the largest changes are not equilibrium adjustments to real disturbances but represent instead sustained departures from long-run equilibrium levels, with real exchange rates remaining "misaligned" for years at a time. Contributors to Misalignment of Exchange Rates address a series of questions about misalignment. Several papers investigate the causes of misalignment and the extent to which observed movements in real exchange rates can be attributed to misalignment. These studies are conducted both empirically, through the experiences of the United States, Great Britain, Japan, and the countries of the European Monetary System, and theoretically, through models of imperfect competition. Attention is then turned to the effects of misalignment, especially on employment and production, and to detailed estimates of the effects of changes in exchange rates on several industries, including the U.S. auto industry. In response to the contention that there is significant "hysteresis" in the adjustment of employment and production to changes in exchange rates, contributors also attempt to determine whether the effects of misalignment can be reversed once exchange rates return to earlier levels. Finally, the issue of how to avoid—or at least control—misalignment through macroeconomic policy is confronted.

Author : Lawrence E. Hinkle,Peter J. Montiel,Peter Montiel
Publisher : World Bank Publications
Page : 638 pages
File Size : 52,6 Mb
Release : 1999
Category : Business & Economics
ISBN : 9780195211269

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Exchange Rate Misalignment by Lawrence E. Hinkle,Peter J. Montiel,Peter Montiel Pdf

The study cautiously identifies exchange rate misalignment as an important element in most of the exchange rate crises that plagued the developing world during the last decade. Given that the increasing integration of world capital markets, has escalated the costs of such crises, a broad consensus emerged in recent years, that the overriding objective of exchange rate policy in developing countries, should be to avoid episodes of prolonged, and substantial misalignment, i.e., situations in which the actual real exchange rate differs significantly from its long-run equilibrium value. It was the Bank's involvement in one such misalignment episode, that eventually led to this book. Following an overview on the concepts and measurement of exchange rate misalignment, its impact on the purchasing power parity, and the relationship between the external real exchange rate (RER), and the two-good internal RER for tradables non-tradables, the study presents methodologies - empirical applications - for estimating the RER equilibrium. The study reaches an optimistic conclusion - that enough is known to identify cases of misalignment, and be able to sound clear warning signals. The implication for exchange rate policy is that ignorance about the empirical value of the equilibrium exchange rate, cannot be used to clinch arguments for extreme exchange arrangements, such as clean floats, currency boards, and "dollarization."

Author : Sebastian Edwards,World Bank
Publisher : Johns Hopkins University Press
Page : 110 pages
File Size : 53,8 Mb
Release : 1988
Category : Business & Economics
ISBN : STANFORD:36105040907409

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Exchange Rate Misalignment in Developing Countries by Sebastian Edwards,World Bank Pdf

This article analyzes the theory of equilibrium real exchange rates and defines misalignment as a deviation of the real exchange rate (RER) from its equilibrium level. The role of macroeconomic policies is then analyzed under three alternative nominal exchange rate regimes: predetermined nominal exchange rates; floating nominal rates; and dual or black market nominal exchange rates. This discussion points out how inconsistent macroeconomic policies often lead to real exchange rate misalignment. Corrective measures, including nominal devaluation and several alternative approaches, are then evaluated.

Author : Mr.Peter Montiel,Mr.Jonathan David Ostry
Publisher : International Monetary Fund
Page : 26 pages
File Size : 55,9 Mb
Release : 1993-08-01
Category : Business & Economics
ISBN : 9781451960358

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Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries by Mr.Peter Montiel,Mr.Jonathan David Ostry Pdf

It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence does not, however, suggest the existence of a robust correlation between these two endogenous variables that is independent of the nature of economic shocks and various structural relationships in the economy. This paper presents an analytical investigation of the reliability of the parallel market premium as an indicator of real exchange rate misalignment in the context of a fully optimizing model of a developing country. The analysis suggests that one should exercise caution in drawing inferences about the sign and magnitude of real exchange rate misalignment from the parallel market premium.

Author : Anonim
Publisher : Peterson Institute
Page : 308 pages
File Size : 44,8 Mb
Release : 2024-06-26
Category : Dollar, American
ISBN : 0881325848

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Dollar Adjustment: How Far? Against What? by Anonim Pdf

The dollar rose about 35 percent in real terms from 1995 to the end of 2001, supporting the US economy of the late 1990s but pushing the current account deficit to a record high. This book looks at the impact of this, examining intervention to achieve desired currency values and the impact of a major dollar realignment on worldwide economies.

Author : Mr.Atsushi Iimi
Publisher : International Monetary Fund
Page : 31 pages
File Size : 49,9 Mb
Release : 2006-06-01
Category : Business & Economics
ISBN : 9781451864007

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Exchange Rate Misalignment by Mr.Atsushi Iimi Pdf

Botswana's successive currency devaluations and recent move from a fixed to a crawling peg exchange rate regime raise the question of whether the exchange rate might be misaligned with economic fundamentals. This paper, applying the behavioral equilibrium exchange rate (BEER) approach, analyzes the behavior of the real exchange rate for the period 1985-2004. It finds that the pula was undervalued in the later 1980s but overvalued in recent years. Some policy lessons from experiences in other countries with crawling peg arrangements are therefore considered in the context of Botswana.

Author : Etienne B. Yehoue,Gilles J. Dufrénot
Publisher : INTERNATIONAL MONETARY FUND
Page : 39 pages
File Size : 43,7 Mb
Release : 2005-08-01
Category : Developing countries
ISBN : 1451861834

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Real Exchange Rate Misalignment: A Panel Co-Integration and Common Factor Analysis by Etienne B. Yehoue,Gilles J. Dufrénot Pdf

We combine some newly developed panel co-integration techniques and common factor analysis to analyze the behavior of the real exchange rate (RER) in a sample of 64 developing countries. We study the dynamic of the RER with its economic fundamentals: productivity, the terms of trade, openness, and government spending. We derive a number of common factors that explain the dynamic of the RER in our sample. We find that while some fundamentals such as productivity, terms of trade, and openness are strongly related to these common factors in low-income countries, no such link is found for the middle-income countries. We also derive the misalignment indices, which seem to reproduce recent episodes of overvaluation and undervaluation in a number of countries.

Author : Ofair Razin,Susan M. Collins
Publisher : Unknown
Page : 44 pages
File Size : 49,5 Mb
Release : 1997
Category : Economic development
ISBN : UCSD:31822025575440

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Real Exchange Rate Misalignments and Growth by Ofair Razin,Susan M. Collins Pdf

Real exchange rate (RER) misalignment is now a standard concept in international macroeconomic theory and policy. However, there is neither a consensus indicator of misalignment, nor an agreed upon methodology for constructing such an indicator. This paper constructs an indicator of RER misalignment for a large sample of developed and developing countries. This indicator is based on a well-structured but simple extension of an IS-LM model of an open economy. The paper then uses regression analysis to explore whether RER misalignments are related to country growth experiences. Interestingly the work finds that there are important non-linearities in the relationship. Only very high over-valuations" appear to be associated with slower economic growth, while moderate to high (but not very high) under-valuations appear to be associated with more rapid economic growth.

Author : International Monetary Fund
Publisher : International Monetary Fund
Page : 34 pages
File Size : 43,8 Mb
Release : 2010-12-01
Category : Business & Economics
ISBN : 9781455210787

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When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth by International Monetary Fund Pdf

We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.

Author : Carlos Goncalves,Mauro Rodrigues
Publisher : International Monetary Fund
Page : 15 pages
File Size : 48,6 Mb
Release : 2017-12-21
Category : Business & Economics
ISBN : 9781484330135

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Exchange Rate Misalignment and Growth: A Myth? by Carlos Goncalves,Mauro Rodrigues Pdf

The impact of real exchange rate movements on GDP growth is a hotly debated issue both in policy and academic circles. In this paper, we provide evidence suggesting that the association between exchange rate misalignment and growth for a broad panel of countries is very weak. Controlling for country fixed effects, time effects and initial GDP, a more depreciated currency is associated with higher growth if one does not exclude outliers. However, this positive association always vanishes after controling for the savings rate. Importantly, this applies for both a large panel of countries and for the emerging economies subsample.

Author : Howard J. Shatz,David G. Tarr
Publisher : World Bank Publications
Page : 36 pages
File Size : 44,6 Mb
Release : 2000
Category : Black market in foreign exchange
ISBN : 8210379456XXX

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Exchange Rate Overvaluation and Trade Protection by Howard J. Shatz,David G. Tarr Pdf

"Lessons from world experience about the consequences of exchange rate overvaluation (the frequent cause of trade crises), the consequences of trying to defend an overvalued exchange rate, and the most appropriate policies for resolving an overvaluation"--Cover.

Author : Enrique Alberola
Publisher : World Bank Publications
Page : 29 pages
File Size : 55,6 Mb
Release : 2013
Category : Electronic
ISBN : 8210379456XXX

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Tango with the Gringo:The hard peg and real misalignment in Argentina by Enrique Alberola Pdf

Between 1990 and 2001 the Argentine peso appreciated by 80 percent in real terms, and its overvaluation has been singled out as one of the main suspects in the debate on the causes of the Argentina collapse of late 2001. This paper assesses the degree of real misalignment in Argentina over the Convertibility period using a model in which the equilibrium real exchange rate is defined as the value consistent with (i) a balance of payments position where any current account imbalance is financed by a sustainable flow of international capital (external equilibrium), and (ii) traded/nontraded sector productivity differentials (internal equilibrium). Empirical implementation of the model suggests that the initial real appreciation of the peso, between 1990 and 1993, was consistent with the productivity increases that Argentina enjoyed following the stabilization of the economy after the hyperinflation of the late 1980s. But after 1996 a widening gap opened between the observed real exchange rate and that consistent with a sustainable net foreign asset position. Our estimates indicate that in 2001 the peso was overvalued by over 50 percent. The model allows us to assess how much of the overvaluation resulted from Argentina's inadequate choice of anchor currency and how much from a divergence of fundamentals between the U.S. and Argentina, ultimately due to the maintenance of policies inconsistent with the peg. We find that both factors played a role in the overvaluation accumulated between 1977 and 2001 that preceded the collapse of the Convertibility regime.

Author : Surjit S. Bhalla
Publisher : Peterson Institute
Page : 283 pages
File Size : 55,5 Mb
Release : 2012
Category : Business & Economics
ISBN : 9780881326512

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Devaluing to Prosperity by Surjit S. Bhalla Pdf

Experts have long questioned the effect of currency undervaluation on overall GDP growth. They have viewed the underlying basis for this policy--intervention in currency markets to keep the price of the home currency cheap--as doomed to failure on both theoretical and empirical grounds. Moreover, the view has been that overvalued currencies hurt economic growth but undervalued currencies cannot help in growth acceleration. A parallel belief has been that the real exchange rate--that is, a country's competitive ranking--cannot be affected by merely changing the nominal exchange rate. This view is grounded in the belief, and expectation, that inflation follows any devaluation of currency. Hence, the conclusion that the real exchange rate cannot be affected by policy. However, given China's remarkable performance in recent decades, this traditional view is being reexamined. China devalued its currency by large amounts in the 1980s and early 1990s; instead of inflation, it achieved high growth. Today, there is near-universal demand for China to significantly revalue its currency. This book examines the veracity of various propositions relating to currency misalignments, and their effect on various items of policy interest. The author subjects more than a century of global exchange rate management and growth outcomes to rigorous empirical analysis and demonstrates convincingly that a country can systematically devalue and yet prosper. The analysis helps in interpreting several phenomena, especially for the last three decades, which have witnessed high economic growth in developing countries, a widening of global imbalances, and a sharp increase in reserve accumulation, particularly among high-growth Asian economies. The book shows that these events are strongly linked via a consistent policy of currency undervaluation in Asian economies.

Author : United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs. Subcommittee on International Finance and Monetary Policy
Publisher : Unknown
Page : 112 pages
File Size : 44,5 Mb
Release : 1986
Category : Dollar, American
ISBN : STANFORD:36105062171637

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Exchange Rate Misalignment by United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs. Subcommittee on International Finance and Monetary Policy Pdf

Author : Ronald MacDonald
Publisher : Routledge
Page : 334 pages
File Size : 50,6 Mb
Release : 2005
Category : Foreign exchange
ISBN : 9781134838226

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Exchange Rate Economics by Ronald MacDonald Pdf

''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""