How to Measure Overvaluation?

Abstract

This article aims to identify indicators and measurement criteria of an overvalued exchange rate. To achieve this goal, we will try to describe and analyze the main theories and measurement criteria overvalued exchange rate, to highlight the measurement criteria that explain the value or undervaluation of the exchange rate. Because it is essential for the understanding of international economic relations. We concluded from our study that there is never a single measure of undervaluation or overvaluation of a currency, but usually a "range" of estimates. The studied criteria presented in our paper are: The first criterion is that the equilibrium exchange rate of market over a long period. The second criterion is represented by the purchasing power parity (PPP). The third criterion is the normal rate of exchange, that is to say, that the rate should normally have an economy. The fourth criterion is the premium on the parallel exchange market DOI: 10.5901/mjss.2013.v4n2p239