Go to AfricaBib home

Go to AfricaBib home AfricaBib Go to database home

bibliographic database
Previous page New search

The free AfricaBib App for Android is available here

Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Measuring exchange rate misalignment: inflation differentials and domestic relative prices
Authors:Masters, William A.ISNI
Ianchovichina, ElenaISNI
Periodical:World Development
Geographic term:Zimbabwe
Subject:exchange rates
External link:https://doi.org/10.1016/S0305-750X(97)10061-4
Abstract:Exchange rate misalignment has long been one of the most controversial issues in international economics. Empirical studies on the subject generally use cross-country differences in overall inflation as proxy measures for a country's real exchange rate (RER). This article shows that using such differential-inflation proxies introduces two systematic biases in model results: understatement of RER movements; and a spurious trend towards depreciation. These biases can be corrected only with disaggregated data on domestic relative prices of tradeable and nontradeable products. Using a standard model with disaggregated data for Zimbabwe covering the period 1967-1987, the authors find that proxy-based results understate misalignment by almost 25 percent and exaggerate depreciation by 4 percent per year. Bibliogr., notes, ref., sum.