Abstract
The literature on exchange rate misalignments as well as on exchange rate determinants is very extensive. To our knowledge, however, no study has analysed the determinants of exchange rate misalignments. As huge capital inflows have been pouring into emerging countries since the climax of the crisis, exchange rate misalignments are becoming a crucial issue for policymakers. For a large panel of emerging and industrialized countries and over the period 1982–2008, we identify, empirically, the main determinants of exchange rate misalignments obtained thanks to a FEER approach. Our analysis put forward trade openness, financial openness and regional specialization as determinant variables of exchange rate misalignments.
Notes
1 The model is fully described in Jeong et al. (Citation2010). The methodology used is a synthesis of previous works on the FEER (Borowski and Couharde, Citation2003; Jeong and Mazier, Citation2003) and of the Symmetric Matrix Inversion Method (SMIM) recently proposed by Cline (Citation2008).