Currency Misalignments and Exchange Rate Regimes in Emerging and Developing Countries

Virginie Coudert () and Cécile COUHARDE

Review of International Economics, 2009, vol. 17, issue 1, pages 121-136

Abstract: Pegged exchange rates are often pointed out as more prone to risk of overvaluation, because their real exchange rates have a tendency to appreciate. We check this assumption empirically over a large sample of emerging and developing countries, by using two databases for de facto classifications by Levy-Yeyati and Sturzenegger (2003) and by Reinhart and Rogoff (2004). We assess currency misalignments by estimating real equilibrium exchange rates taking into account a Balassa effect and the impact of net foreign assets. Pegged currencies are shown to be more overvalued than floating ones. Copyright © 2009 The Authors. Journal compilation © Blackwell Publishing Ltd 2009.

Date: 2009

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