Measuring Misalignment: Purchasing Power Parity and East Asian Currencies in the 1990s
IMF Working Papers, September 1, 1999
Source details
- Canonical URL
- Measuring Misalignment: Purchasing Power Parity and East Asian Currencies in the 1990s
Other formats
Bibliographic details
- Authors: Menzie David Chinn
- Published: September 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451854251.001
Research question and scope
- Uses the concept of purchasing power parity (PPP) to evaluate whether eight East Asian currencies were overvalued on the eve of the 1997 crises.
- Analysis focuses on bilateral and multilateral exchange rates deflated with different price indices.
Methodology
- Applies the Johansen and Horvath-Watson cointegration test procedures to exchange rate series.
- Deflators used:
- Consumer price indexes (CPIs)
- Producer price indexes (PPIs)
- Price indices of export goods
- Empirical note: "The second deflator yields the greatest evidence of “stationarity.”"
Main findings
- Currency valuation outcomes:
- Malaysian currency: overvalued
- Philippines currency: overvalued
- Thai currency: overvalued
- Korean currency: substantially undervalued
- Indonesian currency: substantially undervalued
- Other currencies: mixed results
- Measures of the equilibrium rate based on time trends in CPI-deflated rates typically suggest larger overvaluations.
Subjects and keywords
- Subject terms: Consumer price indexes, Exchange rates, Foreign exchange, Prices, Producer price indexes, Purchasing power parity, Real exchange rates
- Keywords include: cointegration, Consumer price indexes, CPI sample, East Asia, estimates accord, exchange rate, Exchange rates, Hong Kong PPI data, log PPI, overvaluation, Producer price indexes, purchasing power parity, Real exchange rates, retail price index, Thai baht, trend measure, U.S. dollar, WP, yen rate
Content in this bundle
- Measuring Misalignment: Purchasing Power Parity and East Asian Currencies in the 1990s - WP/99/120