Exchange Rate Misalignment Estimates - Sources of Differences

50 Pages Posted: 1 Sep 2011  

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance; University of California, Santa Cruz - Department of Economics; University of California at Santa Cruz - Department of Economics

Eiji Fujii

Kwansei Gakuin University - School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 31, 2011

Abstract

We study the differences of 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 the estimated degree of misalignment across individual countries, as illustrated by the BRIC economies, are quite variable.

Keywords: Penn effect eegression, data revision, PPP-based data, measurement factors, economic factors

JEL Classification: F310, F410, E010, C310

Suggested Citation

Cheung, Yin-Wong and Fujii, Eiji, Exchange Rate Misalignment Estimates - Sources of Differences (August 31, 2011). CESifo Working Paper Series No. 3555. Available at SSRN: https://ssrn.com/abstract=1920666

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

435 Engineering 2
Santa Cruz, CA 95064
United States
831-459-4247 (Phone)
831-459-5077 (Fax)

University of California at Santa Cruz - Department of Economics ( email )

1156 High Street
Santa Cruz, CA 95064
United States

Eiji Fujii (Contact Author)

Kwansei Gakuin University - School of Economics ( email )

1-155 Uegahara Ichiban-cho
Nishinomiya
Japan

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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