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Measuring Misalignment: Purchasing Power Parity and East Asian Currencies in the 1990s

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  • Menzie David Chinn

Abstract

The concept of purchasing power parity (PPP) is used to evaluate whether eight East Asian currencies were overvalued on the eve of the 1997 crises. The Johansen and Horvath-Watson cointegration test procedures are applied to bilateral and multilateral exchange rates, deflated using CPIs, producer price indices (PPIs), and price indices of export goods. The second deflator yields the greatest evidence of “stationarity.” The study find’s that the Malaysian, Philippines, and Thai currencies were overvalued, while the Korean and Indonesian were substantially undervalued. Mixed results were obtained for the others. Measures of the equilibrium rate based on time trends in CPI-deflated rates typically suggest larger overvaluations.

Suggested Citation

  • Menzie David Chinn, 1999. "Measuring Misalignment: Purchasing Power Parity and East Asian Currencies in the 1990s," IMF Working Papers 1999/120, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/120
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    Cited by:

    1. S. Rajan, Ramkishen, 2010. "The Evolution and Impact of Asian Exchange Rate Regimes," ADB Economics Working Paper Series 208, Asian Development Bank.
    2. Blaise Gnimassoun & Valérie Mignon, 2015. "Persistence of Current-account Disequilibria and Real Exchange-rate Misalignments," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 137-159, February.
    3. Damyana Bakardzhieva & Russell Krueger & Bassem Kamar & Jean-Etienne Carlotti, 2011. "Essay on Establishing Conversion Values for the Planned Gulf Cooperation Council (GCC) Currency Union," Working Papers 632, Economic Research Forum, revised 09 Jan 2011.
    4. Ahmad Zubaidi Baharumshah & Siti Hamizah Mohd & Sung Ahn, 2009. "On the predictive power of monetary exchange rate model: the case of the Malaysian ringgit/US dollar rate," Applied Economics, Taylor & Francis Journals, vol. 41(14), pages 1761-1770.
    5. Sophie B鲥au & Antonia López Villavicencio & Val鲩e Mignon, 2012. "Currency misalignments and growth: a new look using nonlinear panel data methods," Applied Economics, Taylor & Francis Journals, vol. 44(27), pages 3503-3511, September.
    6. Mr. Bassem M Kamar & Jean-Etienne Carlotti & Mr. Russell C Krueger, 2009. "Establishing Conversion Values for New Currency Unions: Method and Application to the planned Gulf Cooperation Council (GCC) Currency Union," IMF Working Papers 2009/184, International Monetary Fund.

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