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On Equilibrium Exchange Rates: Is Emerging Asia Different?

Author

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  • Antonia López-Villavicencio
  • Valérie Mignon

Abstract

The aim of this paper is to provide equilibrium exchange rates values for a large set of currencies and to study the adjustment process of observed exchange rates towards these levels by paying a special attention to emerging Asian countries. Relying on panel smooth transition regression models, we show that the real exchange rate dynamics in the long run is nonlinear for emerging Asian countries, while it is linear for the G7 currencies. More especially, there exists an asymmetric behavior of the real exchange rate when facing an over or undervaluation in Asia: the adjustment speed is more important in case of undervaluation, a result that may be explained by the international pressure to limit undervaluations. However, this adjustment being long-lasting, undervaluations may persist over time, as observed since the beginning of the 1990s.

Suggested Citation

  • Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers 2009-38, CEPII research center.
    • Handle: RePEc:cii:cepidt:2009-38
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    2. Cécile Couharde & Issiaka Coulibaly & Olivier Damette, 2011. "Misalignments and Dynamics of Real Exchange Rates in the CFA Franc Zone," Working Papers hal-04140955, HAL.
    3. Nabil Aflouk & Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2011. "Exchange Rate Misalignments and World Imbalances: a FEER Approach for Emerging Countries," Post-Print halshs-00484808, HAL.

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    More about this item

    Keywords

    EQUILIBRIUM EXCHANGE RATES; MISALIGNMENS; PANEL SMOOTH TRANSITION MODELS; EMERGING ASIA;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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