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Misalignment and Managed Exchange Rates: An Application to the Thai Baht
Author:
Ms. G. C. Lim
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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 063
Language:
English
Publication Date:
01 Mar 2000
DOI:
https://doi.org/10.5089/9781451848410.001
ISBN:
9781451848410
ISSN:
1018-5941
Pages:
28
Keywords:
WP; Real exchange rate; misalignment; managed exchange rate system; time-series analysis; simulations; interest differential; expectation error; single-equation approach; integration estimator; system vector error correction result; spot rate; managed rate; policy-managed exchange rate; Managed Equilibrium exchange rate; Thai baht exchange rate; trade equation approach; error-correction speed; Real exchange rates; Exchange rates; Managed exchange rates; Exchange rate arrangements; Interest rate parity
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2000: Issue 063