Real exchange rate misalignment and economy

Wong, Hock Tsen

doi:10.1108/jes-07-2017-0181

Cited by 8 publications

(6 citation statements)

References 28 publications

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“…RER misalignment is extensive in fixed exchange rate regime but transitory in a flexible exchange rate regime (Wong, 2019). The reason is that in a flexible regime market forces bring RER back to the equilibrium level immediately which is not in the case under fixed exchange rate regime.…”

Section: Literature Reviewmentioning

confidence: 96%

Does currency misalignment matter for economic growth? – Evidence from Turkey

Mamun

Bal

Basher

2020

EMJB

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PurposeThe study mainly aims to examine the currency misalignment of Turkish lira and evaluate if it has an impact on economic growth of Turkey.Design/methodology/approachIt relies on Johansen cointegration technique for measuring currency misalignment relying on single-equation approach and the autoregressive distributed lag (ARDL) approach to evaluate how misalignment affects economic growth. The sample period covers from 1980 to 2016.FindingsThe study identifies that terms of trade, relative productivity differences, net foreign asset, investment and trade openness determine the equilibrium REER of Turkey, and the degree of currency misalignment is observed at a substantial level. The outcome of the ARDL approach suggests that higher currency misalignment reduces economic growth. Turning to the separate impacts of undervaluation and overvaluation, while the former falters economic growth, the later promotes it, a finding contrary to the conventional expectation. Therefore, the use of exchange rate as a policy variable is a critical concern to avoid misalignment for sustained economic growth.Practical implicationsThe anti-growth effect of undervaluation and misalignment is an indication of redistribution of income which could be verified by examining the aggregate consumption behavior of the economy in response to RER movements.Originality/valueThe impacts of currency undervaluation and overvaluation on economic growth of Turkey have been studied in a number of time-series studies. But there is no documented study on the role of currency misalignment on Turkish economic growth. This study is the first that examines how the economic growth of Turkey is influenced by currency misalignment together with the impact of undervaluation and overvaluation.

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Section: Literature Reviewmentioning

confidence: 96%

Does currency misalignment matter for economic growth? – Evidence from Turkey

Mamun

Bal

Basher

2020

EMJB

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“…( 3) and ( 4) are, respectively, 𝐻𝐻 0 : 2020) has demonstrated that estimates of 𝛹𝛹 1 and 𝜂𝜂 1 are exactly the same as the estimates of the coefficients attached to lagged error-correction terms due to Engle and Granger (1987). Wong (2019) and Shin et al (2014) in decomposing the 𝑀𝑀𝑀𝑀𝑀𝑀variable into positive changes denoted by ∆𝑀𝑀𝑀𝑀𝑀𝑀 + and negative changes, denoted by ∆𝑀𝑀𝑀𝑀𝑀𝑀 − .In our case, given the adopted definition of 𝑅𝑅𝐸𝐸, negative values reflect an undervaluation of the dollar against the renminbi (renminbi overvalued) and positive values indicate an overvaluation of the dollar against the renminbi (renminbi undervalued).…”

Section: Ii-econometric Methodologymentioning

confidence: 92%

“…Another common feature of prior studies is that they have mainly relied on aggregate trade data, which means that may suffer from the well-known aggregation bias problem. Indeed, as pointed out by Wong (2019), different industries may react differently to RE misalignment, depending on industry-specific factors such as the industry structure, the demand and supply elasticity, the firm heterogeneity, and the product quality (Melitz and Redding, 2014).Therefore, we consider in this paper commodity-level trade flows between the United Statesand China and assess the possible symmetric as well as asymmetric effects of RE misalignment on the exports and imports of 66 commodities that trade between the two investigated countries. For this purpose, we make use of two recent econometric techniques, namely the symmetric (linear) ARDL approach of Pesaran et al (2001) and the asymmetric nonlinear ARDL approach of Shin et al (2014).…”

Section: I-introductionmentioning

confidence: 86%

“…A review of the literature 5 reveals that most studies dealing with the impacts of real exchange rate (RE) misalignment on trade flows of the United States with China (or other country studies) 6 have implicitly supposed that the impacts of RE misalignment on imports and exports are symmetric. A great number of recent empirical studies, however, suggests that the effects of RE misalignment on economic activity in general, and on trade flows in particular, are likely to be asymmetric (Béreauet al, 2012;Couharde, and Sallenave, 2013;Allegret and Sallenave, 2014;Tipoy and Zerihun, 2017;Wong, 2019;Cuestas et al, 2020). For example, Allegret and Sallenave (2014) estimated a GVAR model to assess the impacts of exchange rate misalignment on global imbalances for 15 developed and emerging economies using data for the 1980-2010 period.…”

Section: I-introductionmentioning

confidence: 99%

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The Impacts of the Dollar-Renminbi Exchange Rate Misalignment on the China-United States Commodity Trade: An Asymmetric Analysis

et al. 2022

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Contrary to most existing studies of the literature that assumed that the effects of real exchange rate (RE) misalignment on trade flows are symmetric, this paper considers a more general and realistic framework allowing for possible asymmetric effects. We use monthly time-series data over the January 2002-October 2020 period from 66 two-digit industries that trade between China and the U.S. in order to avoid the well-known aggregation bias. Estimates of symmetric errorcorrection models (ECM) revealed that real dollar-renminbi rate misalignment has short-run effects on 35 U.S. exporting and 53 U.S. importing industries. These short-run effects translated into the long run in 18 and 17 industries, respectively. The numbers increased considerably when estimating asymmetric ECM. Indeed, short-run asymmetric effects were then found in 47 U.S. exporting and 62 U.S. importing industries, which translated into long-run asymmetric effects in 20 U.S. exporting and 21 U.S. importing industries. Our analysis highlights the importance of separating currency overvaluation from currency undervaluation in assessing the effects of the RE misalignment on trade flows between the U.S. and China and confirms that the impacts are industry specific. Our findings (robust to possible structural breaks) are useful for trading industries, and policymakers, and advocate accounting for asymmetries when examining the RE misalignment-trade flows nexus.

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“…Fornero et al (2020) focused on the case of Chile, concluding that the influence of foreign demand on manufacturing exports was stronger than those arising from the exchange rate change. Wong (2019) contributes to the research of the effects of exchange rate misalignments, using autoregressive distibuted lag (ARDL) approach on the example of Malaysia, concluding that undervaluation has a positive impact on manufacturing sector. Inversely, influence of overvaluation is proven to be negative.…”

Section: Literature Overviewmentioning

confidence: 99%

Real Effective Exchange Rate and Industrial Productivity in Croatia: Wavelet Coherence Analysis

Bošnjak

Kordić

Novák

2021

South East European Journal of Economics and Business

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This paper brings releationship between real effective exchange rate and industry production in Croatia. Research sample consists of monthly data from January 2000 up to June 2019. Following wavelet coherence approach, empirical results reveal the relationship across time and frequency domain. The empirical obtained from wavelet coherence analysis and confirmed with conventional correlation analysis suggested positive relationship between industrial productivity and real effective exchange rate in Croatia, with depreciation as a factor of positive influence on industrial productivity. Research results provided in the paper also contributes to the debate on exchange rate policy in Croatia, extending the discussion on national exchange rate policy implications.

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Real exchange rate misalignment and economy

Cited by 8 publications

References 28 publications

Does currency misalignment matter for economic growth? – Evidence from Turkey

Does currency misalignment matter for economic growth? – Evidence from Turkey

The Impacts of the Dollar-Renminbi Exchange Rate Misalignment on the China-United States Commodity Trade: An Asymmetric Analysis

Real Effective Exchange Rate and Industrial Productivity in Croatia: Wavelet Coherence Analysis

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