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File name: WPIEA1201999. ; Size: 5893K
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Measuring Misalignment
Purchasing Power Parity and East Asian Currencies in the 1990s
Menzie David Chinn
University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)
September 1999
IMF Working Paper No. 99/120
Abstract:
The concept of purchasing power parity (PPP) is used to evaluate whether eight East Asian currencies were overvalued on the eve of the 1997 crises. The Johansen and Horvath-Watson cointegration test procedures are applied to bilateral and multilateral exchange rates, deflated using CPIs, producer price indices (PPIs), and price indices of export goods. The second deflator yields the greatest evidence of "stationarity." The study find`s that the Malaysian, Philippines, and Thai currencies were overvalued, while the Korean and Indonesian were substantially undervalued. Mixed results were obtained for the others. Measures of the equilibrium rate based on time trends in CPI-deflated rates typically suggest larger overvaluations.
Number of Pages in PDF File: 29
Keywords: exchange rate purchasing power parity overvaluation cointegration
JEL Classification: F31 F41 F47
working papers series
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Date posted: February 15, 2006
Suggested CitationChinn, Menzie David, Measuring Misalignment
Purchasing Power Parity and East Asian Currencies in the 1990s (September 1999). IMF Working Paper, Vol. , pp. 1-29, 1999. Available at SSRN: http://ssrn.com/abstract=880647
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