On the Determinants of Exchange Rate Misalignments

The literature on exchange rate misalignments is very extensive as well as the literature on exchange rate determinants. To our knowledge, however, no study has analyzed the determinants of exchange rate misalignments. As huge capital inflows have been pouring into emerging countries since the climax of the crisis, exchange rate misalignments are becoming a crucial issue for policy makers. For a large panel of emerging and industrialized countries and on the period 1982-2008, we identify, empirically, the main determinants of exchange rate misalignments obtained thanks to a FEER approach (Williamson, 1994). Our analysis put forward trade openness, financial openness and regional specialization as determinant variables of exchange rate misalignments

Exchange Rate Misalignments and World Imbalances: a FEER Approach for Emerging Countries

International audienceSince the mid-1990s, the world imbalances have increased significantly with a large US current deficit facing Asian surpluses, mainly Chinese. Since 2007, a partial reduction of these imbalances has been obtained, largely thanks to production's decreases, without large exchange rate adjustments. The Asian surpluses have remained important. The objective of this paper is to examine the exchange rate misalignments (ERM) of the main emerging countries in Asia and Latin America since the 1980s, so as to shed light on the 2000s by a long term analysis and compare with the industrialized countries' case. Our results confirm that ERM have been reduced since the mid-2000s at the world level, but the dollar remained overvalued against the East Asian countries, except the yen. Chinese, Indian and Brazilian exchange rate policies have been much contrasted since the 1980s. The Indian rupee has been more often overvalued while a more balance situation prevailed in Brazil only since the 2000s. The Latin American countries have faced wider and more dispersed ERM and current imbalances than East Asian countries. But Argentina, Chile and Uruguay benefits now of undervalued currencies while Mexico is closer to equilibrium

Exchange rate misalignments and economic growth: a threshold panel approach

International audienceThis study deals with the link between exchange rate misalignments (ERM) and economic growth, for a large sample of advanced and emerging economies on the period 1982-2010. The estimation of equilibrium exchange rate (EER) is based on a FEER approach. The relation "misalignments-growth" is estimated using a PSTR (Panel Smooth Transition Regression) and GMM models. Our main results show that the impact of ERM on economic growth is nonlinear and asymmetric. An overvaluation has a negative impact on growth while an undervaluation sustains growth until an estimated threshold (15.5% for emerging countries and 9% for developed countries). The coefficient is weaker for emerging countries (0.02) than for developed countries (0.08). Due to non linearity and coefficient's value, the undervaluation has a positive effect on growth even beyond the threshold. We also demonstrate that the impact of ERM on growth is positive only in the case of small undervaluation for emerging countries. However, concerning developed countries, the undervaluation have a positive effect on growth even beyond the estimated threshold

Impact of monetary regime and exchange rates on ASEAN economic integration

International audienceThe ASEAN countries have experimented contrasted exchange rate regimes since the 1990s. The Asian crisis of 1997 has shown the limits of a simple dollar-peg policy without formal institutions. During the 2000s much effort has been devoted to improving monetary and financial cooperation at the regional level, especially with the Chiang Mai initiative and the Asian Bond market. But results have been limited, mainly due to political issues with the underlying competition between China and Japan. The financial crisis of 2008 has given new interest to the question of monetary cooperation at the regional level. Due to the high degree of heterogeneity of East Asian countries, it appears necessary to preserve the possibility of exchange rate adjustments in a future exchange rate regime. Various forms of monetary regime have been proposed from the Asian Currency Unit (ACU) to the common currency basket or the yen block or the yuan block in a long-term perspective, with improvement at the level of institutional forms, such as an Asian Monetary Fund and Asian bond markets. However obstacles remain the same with a lack of political project and the will of China to preserve its autonomy. A long transition period with adjustable exchange rates regime, based on different types of institutions, might be the more likely, before, may be in the long term, the settlement of a yuan block, which does not mean a yuan zone