Real exchange rate misalignment of Asian currencies

Abstract

This paper examines the size of real exchange rate (RER) misalignment in seven developing Asian counties and Japan. An analytical framework is developed to estimate the equilibrium RERs, which are then used to derive the RER misalignments. The estimation results from the model indicate that RERs have been misaligned in most of the Asian countries during the sample period, although not to the extent claimed in some studies. The real exchange behaviour in these countries is mostly consistent with the economic fundamentals and the magnitude of measured RER misalignment is not alarming.