Real exchange rate misalignment and business cycle fluctuations in the Asia-Pacific
Files
(Published version)
Date
2023
Authors
Ambaw, D.
Pundit, M.
Ramayandi, A.
Sim, N.
Editors
Advisors
Journal Title
Journal ISSN
Volume Title
Type:
Journal article
Citation
Asian Economic Journal, 2023; 37(2):164-189
Statement of Responsibility
Conference Name
Abstract
Real exchange rate (RER) misalignment, which is the deviation between the actual real exchange rate from its equilibrium, occurs frequently among developing countries. Studies have shown that RER misalignment may have negative economic implications, such as a decline in economic growth, exports, and export diversification and an increased risk of currency crises and political instability. Using quarterly data for 22 sample countries from 1990 to 2018, this paper investigates the impact of RER misalignment on business cycles in the Asia-Pacific by employing a panel vector autoregression involving consumer price index (CPI) inflation, output gap, short-term interest rates, and RER misalignment. We find that RER overvaluation may reduce CPI inflation and short-term interest rates. We also find that the Asia-Pacific region is highly heterogeneous in that the output gaps of some countries, particularly from the Southeast Asian region, are more susceptible to RER misalignment shocks.
School/Discipline
Dissertation Note
Provenance
Description
Data source: Supporting information, https://doi.org/10.1111/asej.12301
Access Status
Rights
Copyright 2023 East Asian Economic Association and John Wiley & Sons Australia
Access Condition Notes: Accepted manuscript available after 1 October 2025