Chapter 8 On Emerging Asian Equilibrium Exchange Rates

Abstract

The aim of this chapter is to provide equilibrium exchange rates values for a large set of currencies and to study the adjustment process of observed exchange rates toward these levels by paying special attention to emerging Asian countries. Relying on panel smooth transition regression models, we show that real exchange rate dynamics in the long run are nonlinear for emerging Asian countries, and linear for the G7 currencies. Especially, there exists an asymmetric behavior of the real exchange rate when facing an over- or undervaluation, the adjustment speed being higher in the case of undervaluation in Asia. Although this result may be explained by the international pressure to limit undervaluation, the undervaluation may still persist over time, as has been observed since the beginning of 1990s.

Citation

López-Villavicencio, A. and Mignon, V. (2011), "Chapter 8 On Emerging Asian Equilibrium Exchange Rates", Cheung, Y.-W., Kakkar, V. and Ma, G. (Ed.) The Evolving Role of Asia in Global Finance (Frontiers of Economics and Globalization, Vol. 9), Emerald Group Publishing Limited, Leeds, pp. 181-211. https://doi.org/10.1108/S1574-8715(2011)0000009013