BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 25/2011:
Exchange rate misalignment estimates – Sources of differences
Yin-Wong Cheung ()
and Eiji Fujii
Abstract: We study the differences in currency misalignment
estimates obtained from alternative datasets derived from two International
Comparison Program (ICP) surveys. A decomposition exercise reveals that the
year 2005 misalignment estimates are substantially affected by the ICP
price revision. Further, we find that differences in misalignment estimates
are systematically affected by a country’s participation status in the ICP
survey and its data quality – a finding that casts doubt on the economic
and policy relevance of these misalignment estimates. The patterns of
changes in estimated degrees of misalignment across individual countries,
as exemplified by the BRIC economies, are highly variable.
Keywords: Penn effect regression; data revision; PPP-based data; measurement factors; economic factors; (follow links to similar papers)
JEL-Codes: C31; E01; F31; F40; (follow links to similar papers)
56 pages, November 11, 2011
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