Assessing Real Exchange Rate Misalignments

Kubota, Megumi

关键词: CAPITAL CONTROLS;    EXCHANGE RATE REGIMES;    EXCHANGE RATES;    EXPORT SECTOR;    FOREIGN EXCHANGE;   

DOI  :  10.1596/1813-9450-5925
RP-ID  :  WPS5925

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

There is a renewed debate on the role ofexchange rate policies as an industrial policy tool in bothacademic and policy circles. Policy practitioners usuallyexamine real exchange rate misalignments to monitor thebehavior of this key relative price and, if possible,exploit distortions in the traded and non-traded relativeprice to promote growth. Anecdotal evidence shows that somecountries have pursued very active exchange rate policies topromote the export sector and enhance growth by undervaluingtheir currencies. The main goal of this paper is to providea systematic characterization of real exchange rateundervaluations. The long-run real exchange rate equation isestimated using: (a) Johansen time series cointegrationestimates, and (b) pooled mean group estimates fornon-stationary panel data. The paper constructs a dataset ofreal undervaluation episodes. It first evaluates whether(and if so, to what extent) economic policies can be used toeither cause or sustain real undervaluations. In thiscontext the paper empirically models the likelihood andmagnitude of sustaining real exchange rate undervaluationsby examining their link to policy instruments (such asexchange rate regimes and capital controls, among otherpolicies) using probit and Tobit models. Finally, itinvestigates whether foreign exchange intervention cangenerate persistent real exchange rate deviations fromequilibrium. In general, it finds that intervention can leadto greater persistence in the incidence and magnitude ofreal exchange rate undervaluations.