Misalignment of Exchange Rates

Misalignment of Exchange Rates
Author: Richard C. Marston
Publisher: University of Chicago Press
Total Pages: 332
Release: 2008-04-15
Genre: Business & Economics
ISBN: 0226507254

Download Misalignment of Exchange Rates Book in PDF, Epub and Kindle

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.

Exchange Rate Misalignment

Exchange Rate Misalignment
Author: Lawrence E. Hinkle
Publisher: World Bank Publications
Total Pages: 638
Release: 1999
Genre: Business & Economics
ISBN: 019521126X

Download Exchange Rate Misalignment Book in PDF, Epub and Kindle

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."

Exchange Rate Misalignment in Developing Countries

Exchange Rate Misalignment in Developing Countries
Author: Sebastian Edwards
Publisher: Johns Hopkins University Press
Total Pages: 110
Release: 1988
Genre: Business & Economics
ISBN:

Download Exchange Rate Misalignment in Developing Countries Book in PDF, Epub and Kindle

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.

Exchange Rate Misalignment and Growth: A Myth?

Exchange Rate Misalignment and Growth: A Myth?
Author: Carlos Goncalves
Publisher: International Monetary Fund
Total Pages: 15
Release: 2017-12-21
Genre: Business & Economics
ISBN: 148433602X

Download Exchange Rate Misalignment and Growth: A Myth? Book in PDF, Epub and Kindle

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.

Exchange Rate Misalignment and Growth: A Myth?

Exchange Rate Misalignment and Growth: A Myth?
Author: Carlos Goncalves
Publisher: International Monetary Fund
Total Pages: 15
Release: 2017-12-21
Genre: Business & Economics
ISBN: 1484330137

Download Exchange Rate Misalignment and Growth: A Myth? Book in PDF, Epub and Kindle

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.

Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries

Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries
Author: Mr.Peter Montiel
Publisher: International Monetary Fund
Total Pages: 26
Release: 1993-08-01
Genre: Business & Economics
ISBN: 1451960352

Download Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries Book in PDF, Epub and Kindle

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.

Devaluing to Prosperity

Devaluing to Prosperity
Author: Surjit S. Bhalla
Publisher: Peterson Institute
Total Pages: 283
Release: 2012
Genre: Business & Economics
ISBN: 0881326518

Download Devaluing to Prosperity Book in PDF, Epub and Kindle

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.

Exchange Rate Economics

Exchange Rate Economics
Author: Ronald MacDonald
Publisher: Routledge
Total Pages: 334
Release: 2005
Genre: Foreign exchange
ISBN: 1134838220

Download Exchange Rate Economics Book in PDF, Epub and Kindle

''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""

Exchange Rate Misalignment

Exchange Rate Misalignment
Author: Mr.Atsushi Iimi
Publisher: International Monetary Fund
Total Pages: 31
Release: 2006-06-01
Genre: Business & Economics
ISBN: 1451864000

Download Exchange Rate Misalignment Book in PDF, Epub and Kindle

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.