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Currency Misalignments and Exchange Rate Regimes in Emerging and Developing Countries *
Author(s) -
Coudert Virginie,
Couharde Cécile
Publication year - 2009
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2008.00782.x
Subject(s) - economics , currency , exchange rate , emerging markets , monetary economics , de facto , sample (material) , foreign exchange risk , developing country , net foreign assets , interest rate parity , foreign exchange , econometrics , international economics , macroeconomics , current account , chemistry , chromatography , political science , law , economic growth
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.