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

March 1, 2000

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Format: Chicago

G. C. Lim Misalignment and Managed Exchange Rates: An Application to the Thai Baht, (USA: International Monetary Fund, 2000) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Exchange rate arrangements, Exchange rates, Financial services, Foreign exchange, Interest rate parity, Managed exchange rates, Real exchange rates

Keywords: Error-correction speed, Exchange rate arrangements, Exchange rates, Expectation error, Integration estimator, Interest differential, Interest rate parity, Managed Equilibrium exchange rate, Managed exchange rate system, Managed exchange rates, Managed rate, Misalignment, Policy-managed exchange rate, Real exchange rate, Real exchange rates, Simulations, Single-equation approach, Spot rate, System vector error correction result, Thai baht exchange rate, Time-series analysis, Trade equation approach, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/063
Stock No:

WPIEA0632000
ISBN:

9781451848410
ISSN:

1018-5941

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