Equilibrium exchange rate and misalignment In selected MENA countries

Abstract

The purpose of this paper is to estimate the equilibrium real exchange rate and derive the degree of misalignment for five MENA currencies: the Algerian Dinar, the Moroccan Dirham, the Egyptian Pound, the Tunisian Dinar and the Turkish lira. Exchange rate policy represents a key tool in macro-economic management and dominates the public policy debate today. How to assess whether exchange rate is undervalued or overvalued with respect to its equilibrium value is clearly at the heart of this debate. An extensive analysis of the degree of misalignment of the five currencies is undertaken on the basis of detailed country specific data. Overall, our results pick up almost perfectly the exchange rate policy episodes in the five countries.Exchange rate; Misalignment; Equilibrium exchange rate