Misalignment and Managed Exchange Rates: An Application to the Thai Baht

Guay Lim

No 2000/063, IMF Working Papers from International Monetary Fund

Abstract: This paper proposes a methodology for analyzing dynamic misalignment in managed exchange rate systems that combines the estimation approach to modeling the real exchange rate with the calibration approach to generating the equilibrium real exchange rate. The methodology is applied to the Thai baht and the model is estimated using only pre-July 1997 data. An analysis of the difference between the evolution of the actual real exchange rate and the generated equilibrium rate - the misalignment gap - reveals the extent to which the market was persistently factoring in an expected depreciation of the Thai baht.

Keywords: WP; Real exchange rate; misalignment; managed exchange rate system; time-series analysis; simulations; interest differential; expectation error; single-equation approach; integration estimator; system vector error correction result; spot rate; managed rate; policy-managed exchange rate; Managed Equilibrium exchange rate; Thai baht exchange rate; trade equation approach; error-correction speed; Real exchange rates; Exchange rates; Managed exchange rates; Exchange rate arrangements; Interest rate parity (search for similar items in EconPapers)
Pages: 28
Date: 2000-03-01
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Citations: View citations in EconPapers (13)

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