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N° 2009-38 |
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| December 2009 |
| On Equilibrium Exchange Rates: Is Emerging Asia Different? |
Antonia López-Villavicencio
Valérie Mignon |
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| 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. |
Non-technical summary  |
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Résumé
non-technique
en français |
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| Full text |
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| Equilibrium exchange rates; misalignments; panel smooth transition models; emerging Asia |
Keywords |
| F31; C23 |
JEL classification |
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