Measuring Exchange Rate Misalignment

Umit Ozale and Erinc Yeldan

No 206, Working Papers from Economic Research Forum

Abstract: We propose a new methodology to measure exchange rate misalignment for Turkey, which has already undergone a severe economic crisis. We estimate the real exchange rate within a time varying parameter model, where a return-to-normality assumption about the parameters are assumed. Contrary to common belief, it is found that, except the initial four months of the stabilization program, the Turkish Lira remained structurally undervalued for most of 2000. Also, we observe a pattern where the Lira has been structurally overvalued after the crisis in 1994 until 1998, and has displayed structural undervaluation after that.

Pages: 13 pages
Date: 2002-02-14, Revised 2002-02-14
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Citations: View citations in EconPapers (3)

Published by The Economic Research Forum (ERF)

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