Correcting Real Exchange Rate Misalignment : Conceptual and Practical Issues

This paper studies the issue of real exchange rate misalignment and the difficulties in settling international real exchange rate disputes. The authors show theoretically that determining when a country should be sanctioned for real exchange rate &...

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Bibliographic Details
Main Authors:	Eden, Maya, Nguyen, Ha
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCESS TO INSURANCE ACCOUNTS RECEIVABLE ACCUMULATION OF RESERVES ADVERSE SHOCKS AGGREGATE DEMAND AGGREGATE SUPPLY ASSET VALUE BANK POLICY BANKING CRISIS BENCHMARK BENCHMARKS BONDS BUDGET CONSTRAINTS BUFFER CAPITAL CONTROLS COLLATERAL COLLATERALIZATION CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION BASKET CONSUMPTION BASKETS CONSUMPTION INCREASES CONSUMPTION PATH CONSUMPTION PLAN CURRENT ACCOUNT CURRENT ACCOUNT BALANCE CURRENT ACCOUNT BALANCES CURRENT ACCOUNTS DEPRECIATION DEPRECIATIONS DEPRESSION DEVALUATIONS DEVELOPMENT POLICY DISPOSABLE INCOME DISTORTION DISTORTIONS DISTRIBUTION OF WEALTH DIVIDENDS DOMESTIC CAPITAL DOMESTIC CONSUMPTION DOMESTIC CURRENCY DOMESTIC DEMAND DOMESTIC GOOD DOMESTIC GOODS DOMESTIC MARKET DOMESTIC PRICE DOMESTIC SAVING DOMESTIC SAVINGS DUMMY VARIABLE ECONOMIC CONDITIONS ECONOMIC GROWTH EMERGING ECONOMIES EMERGING ECONOMY EMERGING MARKET EMERGING MARKETS EQUILIBRIUM EQUILIBRIUM PRICES EXCHANGE RATE DEPRECIATION EXCHANGE RATE DETERMINATION EXCHANGE RATE DYNAMICS EXCHANGE RATE MISALIGNMENTS EXCHANGE RATE NEED EXCHANGE RATE REGIMES EXCHANGE RATE TARGETING EXPENDITURES EXPORT SUBSIDIES EXPORTERS EXTERNALITIES FINANCIAL DEVELOPMENT FINANCIAL MARKETS FINANCIAL SUPPORT FINANCIAL SYSTEM FISCAL BALANCE FISCAL POLICY FIXED EFFECTS FOREIGN ASSET FOREIGN ASSET POSITION FOREIGN ASSETS FOREIGN CURRENCY FOREIGN INTEREST FOREIGN INTEREST RATE FOREIGN MARKETS FOREIGN RESERVE FOREIGN RESERVES FUTURE REAL EXCHANGE RATE GDP GDP PER CAPITA GLOBAL MARKETS GOVERNMENT BUDGET GOVERNMENT CONSUMPTION GOVERNMENT INTERVENTION GOVERNMENT POLICIES GOVERNMENT POLICY GOVERNMENT SPENDING GOVERNMENT SUBSIDIES GROWTH RATE HOLDING IMPORTS INEFFICIENCY INSTRUMENT INSURANCE INTEREST PARITY INTEREST RATE DECLINES INTEREST RATE PARITY INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL PRICE INTERNATIONAL TRADE INVESTING LABOR MARKET LABOR MARKET SEGMENTATION LIBERALIZATION MACROECONOMIC BALANCE MACROECONOMICS MARGINAL PRODUCT MARGINAL PRODUCTS MARKET POWER MARKET SEGMENTATION MEDIUM OF EXCHANGE MONETARY EXPANSION MONEY DEMAND MONEY SUPPLIES MONEY SUPPLY MONOPOLY MULTIPLIERS NATIONAL SECURITY NEGATIVE EXTERNALITIES NET EXPORTS NOMINAL DEPRECIATION NOMINAL EXCHANGE RATE NOMINAL INTEREST RATE OPTIMIZATION OUTPUT GROWTH PARETO EFFICIENCY POLICY INSTRUMENTS POLICY RESEARCH POLITICAL ECONOMY POPULATION GROWTH POSITIVE EXTERNALITIES POSITIVE EXTERNALITY POVERTY REDUCTION PRECAUTIONARY SAVINGS MOTIVE PRICE CONTROLS PRICE ELASTICITIES PRICE OF EXPORTS PRICE OF OIL PRODUCTION FUNCTION PRODUCTION FUNCTIONS PRODUCTION INPUTS PRODUCTIVITY RATE OF RETURN REAL COST REAL EFFECTIVE EXCHANGE RATE REAL EXCHANGE REAL EXCHANGE RATE REAL EXCHANGE RATE MISALIGNMENT REAL EXCHANGE RATE MISALIGNMENTS REAL EXCHANGE RATES REAL GDP RECESSION RECESSIONS RELATIVE PRICE RELATIVE PRICES RESERVE ACCUMULATION RETURN RETURNS RISK SHARING SAFETY NETS SAVINGS RATES SCATTER PLOTS SETTLEMENT SOURCE OF UNCERTAINTY SPOT MARKET STOCK HOLDERS STOCK PRICE TAX TAX RATE TAX RATES TAX REVENUES TAXATION TRADABLE GOOD TRADABLE GOODS TRADE DEFICIT TRADE LIBERALIZATION TRADE RESTRICTION TRADING TRADING PARTNERS UNDERVALUATION VALUATION WAGES WEIGHTS WORLD ECONOMY WORLD INTEREST RATE WORLD PRICE
Online Access:	http://documents.worldbank.org/curated/en/2012/04/16235073/correcting-real-exchange-rate-misalignment-conceptual-practical-issues http://hdl.handle.net/10986/6048

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Summary:	This paper studies the issue of real exchange rate misalignment and the difficulties in settling international real exchange rate disputes. The authors show theoretically that determining when a country should be sanctioned for real exchange rate "manipulations" is difficult: in some situations a country's real exchange rate targeting can be beneficial to other countries, while in others it is not. Regardless, it is difficult to establish whether a misaligned real exchange rate is intentionally manipulated rather than unintentionally caused by other policies or by various distortions in the economy. The paper continues by illustrating the difficulty in measuring real exchange rate misalignment, and provides a critical assessment of existing methodologies. It concludes by proposing a new method for measuring real exchange rate misalignment based on differences in marginal products between producers of tradable and non-tradable goods.

Correcting Real Exchange Rate Misalignment : Conceptual and Practical Issues

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