Estimating an Equilibrium Exchange Rate for the Argentine Peso

This paper assesses the equilibrium value of the Argentine peso exchange rate based on the country's economic fundamentals and compares it with the official exchange rate value. The paper estimates a behavioral equilibrium exchange rate model...

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Main Authors:	Coppola, Andrea, Lagerborg, Andresa, Mustafaoglu, Zafer
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	MONETARY POLICY STOCK PRICES TIME HORIZON PRODUCTION PRICE LEVELS ADJUSTMENT PATH LAGS UNDERVALUATION STOCK STRUCTURAL CHANGE DOLLAR RATE INTEREST DEPRECIATION COMMON CURRENCY REAL EXCHANGE RATES CONSUMER PRICE INDICES EXPECTATIONS MONEY SUPPLY TRADE BARRIERS INTEREST RATE REAL GDP EXCHANGE GDP PER CAPITA EXPORTS ELASTICITY BLACK MARKET POLITICAL ECONOMY RISK PREMIUM FOREIGN CURRENCY RESERVES BONDS DEVALUATION EQUILIBRIUM VARIABLES TRADE OPENNESS MARKET EXCHANGE RATE PAYMENTS WEALTH INFLATION TRENDS CENTRAL BANK CHOICE MACROECONOMIC STABILITY EFFECTIVE EXCHANGE RATE INFLUENCE TRADE BALANCE CURRENCY DEVELOPMENT ECONOMICS ERROR CORRECTION MODEL EXOGENOUS VARIABLES CURRENT ACCOUNT MONEY PARALLEL MARKETS EXCHANGE RATES BASE YEAR PRODUCTIVITY ECONOMETRICS IMPERFECT COMPETITION QUOTAS CRITERIA PARALLEL MARKET NET EXPORTS DEBT INFLATION RATE MULTIPLE EXCHANGE RATES BLACK MARKET EXCHANGE RATE PREMIUM IMPORTS BLACK MARKET EXCHANGE RATE CONSUMER PREFERENCES TRADE POLICY EXCHANGE RATE MISALIGNMENT REAL INTEREST RATE MACROECONOMIC BALANCE AVERAGING DISTORTIONS FOREIGN CURRENCY ECONOMIC RESEARCH TAXES ROBUSTNESS CHECK UNEMPLOYMENT PRODUCTIVITY GROWTH CONSUMPTION MISALIGNMENT VALUE ADDED CAPITAL CONTROLS INTERNATIONAL RESERVES CAPITAL WAGES DEFLATORS ECONOMETRIC ANALYSIS EQUILIBRIUM LEVEL FINANCIAL CRISIS VALUE COMPETITIVENESS CREDIT MACROECONOMICS PURCHASING POWER EXCHANGE MARKETS ARBITRAGE CONDITIONS AGGREGATE DEMAND PARALLEL EXCHANGE RATES CONSUMERS AGRICULTURE ECONOMY
Online Access:	http://documents.worldbank.org/curated/en/2016/05/26401101/estimating-equilibrium-exchange-rate-argentine-peso http://hdl.handle.net/10986/24523

id	okr-10986-24523
recordtype	oai_dc
spelling	okr-10986-245232021-04-23T14:04:22Z Estimating an Equilibrium Exchange Rate for the Argentine Peso Coppola, Andrea Lagerborg, Andresa Mustafaoglu, Zafer MONETARY POLICY STOCK PRICES TIME HORIZON PRODUCTION PRICE LEVELS ADJUSTMENT PATH LAGS UNDERVALUATION STOCK STRUCTURAL CHANGE DOLLAR RATE INTEREST DEPRECIATION COMMON CURRENCY REAL EXCHANGE RATES CONSUMER PRICE INDICES EXPECTATIONS MONEY SUPPLY TRADE BARRIERS INTEREST RATE REAL GDP EXCHANGE GDP PER CAPITA EXPORTS ELASTICITY BLACK MARKET POLITICAL ECONOMY RISK PREMIUM FOREIGN CURRENCY RESERVES BONDS DEVALUATION EQUILIBRIUM VARIABLES TRADE OPENNESS MARKET EXCHANGE RATE PAYMENTS WEALTH INFLATION TRENDS CENTRAL BANK CHOICE MACROECONOMIC STABILITY EFFECTIVE EXCHANGE RATE INFLUENCE TRADE BALANCE CURRENCY DEVELOPMENT ECONOMICS ERROR CORRECTION MODEL EXOGENOUS VARIABLES CURRENT ACCOUNT MONEY PARALLEL MARKETS EXCHANGE RATES BASE YEAR PRODUCTIVITY ECONOMETRICS IMPERFECT COMPETITION QUOTAS CRITERIA PARALLEL MARKET NET EXPORTS DEBT INFLATION RATE MULTIPLE EXCHANGE RATES BLACK MARKET EXCHANGE RATE PREMIUM IMPORTS BLACK MARKET EXCHANGE RATE CONSUMER PREFERENCES TRADE POLICY EXCHANGE RATE MISALIGNMENT REAL INTEREST RATE MACROECONOMIC BALANCE AVERAGING DISTORTIONS FOREIGN CURRENCY ECONOMIC RESEARCH TAXES ROBUSTNESS CHECK UNEMPLOYMENT PRODUCTIVITY GROWTH CONSUMPTION MISALIGNMENT VALUE ADDED CAPITAL CONTROLS INTERNATIONAL RESERVES CAPITAL WAGES DEFLATORS ECONOMETRIC ANALYSIS EQUILIBRIUM LEVEL FINANCIAL CRISIS VALUE COMPETITIVENESS CREDIT MACROECONOMICS PURCHASING POWER EXCHANGE MARKETS ARBITRAGE CONDITIONS AGGREGATE DEMAND PARALLEL EXCHANGE RATES CONSUMERS AGRICULTURE ECONOMY This paper assesses the equilibrium value of the Argentine peso exchange rate based on the country's economic fundamentals and compares it with the official exchange rate value. The paper estimates a behavioral equilibrium exchange rate model that allows for movements in the equilibrium real effective exchange rate based on changing economic fundamentals, using monthly data from 1980 to 2015. The analysis identifies four key fundamentals driving the equilibrium exchange rate in Argentina: terms of trade, productivity differentials, foreign currency reserves, and trade openness. Based on these fundamentals, before the exchange rate reunification that took place at the end of 2015, the Argentine peso was overvalued by 39 percent. The results are robust to alternative estimation approaches. 2016-06-14T19:30:45Z 2016-06-14T19:30:45Z 2016-05 Working Paper http://documents.worldbank.org/curated/en/2016/05/26401101/estimating-equilibrium-exchange-rate-argentine-peso http://hdl.handle.net/10986/24523 English en_US Policy Research Working Paper;No. 7682 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Argentina
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	MONETARY POLICY STOCK PRICES TIME HORIZON PRODUCTION PRICE LEVELS ADJUSTMENT PATH LAGS UNDERVALUATION STOCK STRUCTURAL CHANGE DOLLAR RATE INTEREST DEPRECIATION COMMON CURRENCY REAL EXCHANGE RATES CONSUMER PRICE INDICES EXPECTATIONS MONEY SUPPLY TRADE BARRIERS INTEREST RATE REAL GDP EXCHANGE GDP PER CAPITA EXPORTS ELASTICITY BLACK MARKET POLITICAL ECONOMY RISK PREMIUM FOREIGN CURRENCY RESERVES BONDS DEVALUATION EQUILIBRIUM VARIABLES TRADE OPENNESS MARKET EXCHANGE RATE PAYMENTS WEALTH INFLATION TRENDS CENTRAL BANK CHOICE MACROECONOMIC STABILITY EFFECTIVE EXCHANGE RATE INFLUENCE TRADE BALANCE CURRENCY DEVELOPMENT ECONOMICS ERROR CORRECTION MODEL EXOGENOUS VARIABLES CURRENT ACCOUNT MONEY PARALLEL MARKETS EXCHANGE RATES BASE YEAR PRODUCTIVITY ECONOMETRICS IMPERFECT COMPETITION QUOTAS CRITERIA PARALLEL MARKET NET EXPORTS DEBT INFLATION RATE MULTIPLE EXCHANGE RATES BLACK MARKET EXCHANGE RATE PREMIUM IMPORTS BLACK MARKET EXCHANGE RATE CONSUMER PREFERENCES TRADE POLICY EXCHANGE RATE MISALIGNMENT REAL INTEREST RATE MACROECONOMIC BALANCE AVERAGING DISTORTIONS FOREIGN CURRENCY ECONOMIC RESEARCH TAXES ROBUSTNESS CHECK UNEMPLOYMENT PRODUCTIVITY GROWTH CONSUMPTION MISALIGNMENT VALUE ADDED CAPITAL CONTROLS INTERNATIONAL RESERVES CAPITAL WAGES DEFLATORS ECONOMETRIC ANALYSIS EQUILIBRIUM LEVEL FINANCIAL CRISIS VALUE COMPETITIVENESS CREDIT MACROECONOMICS PURCHASING POWER EXCHANGE MARKETS ARBITRAGE CONDITIONS AGGREGATE DEMAND PARALLEL EXCHANGE RATES CONSUMERS AGRICULTURE ECONOMY
spellingShingle	MONETARY POLICY STOCK PRICES TIME HORIZON PRODUCTION PRICE LEVELS ADJUSTMENT PATH LAGS UNDERVALUATION STOCK STRUCTURAL CHANGE DOLLAR RATE INTEREST DEPRECIATION COMMON CURRENCY REAL EXCHANGE RATES CONSUMER PRICE INDICES EXPECTATIONS MONEY SUPPLY TRADE BARRIERS INTEREST RATE REAL GDP EXCHANGE GDP PER CAPITA EXPORTS ELASTICITY BLACK MARKET POLITICAL ECONOMY RISK PREMIUM FOREIGN CURRENCY RESERVES BONDS DEVALUATION EQUILIBRIUM VARIABLES TRADE OPENNESS MARKET EXCHANGE RATE PAYMENTS WEALTH INFLATION TRENDS CENTRAL BANK CHOICE MACROECONOMIC STABILITY EFFECTIVE EXCHANGE RATE INFLUENCE TRADE BALANCE CURRENCY DEVELOPMENT ECONOMICS ERROR CORRECTION MODEL EXOGENOUS VARIABLES CURRENT ACCOUNT MONEY PARALLEL MARKETS EXCHANGE RATES BASE YEAR PRODUCTIVITY ECONOMETRICS IMPERFECT COMPETITION QUOTAS CRITERIA PARALLEL MARKET NET EXPORTS DEBT INFLATION RATE MULTIPLE EXCHANGE RATES BLACK MARKET EXCHANGE RATE PREMIUM IMPORTS BLACK MARKET EXCHANGE RATE CONSUMER PREFERENCES TRADE POLICY EXCHANGE RATE MISALIGNMENT REAL INTEREST RATE MACROECONOMIC BALANCE AVERAGING DISTORTIONS FOREIGN CURRENCY ECONOMIC RESEARCH TAXES ROBUSTNESS CHECK UNEMPLOYMENT PRODUCTIVITY GROWTH CONSUMPTION MISALIGNMENT VALUE ADDED CAPITAL CONTROLS INTERNATIONAL RESERVES CAPITAL WAGES DEFLATORS ECONOMETRIC ANALYSIS EQUILIBRIUM LEVEL FINANCIAL CRISIS VALUE COMPETITIVENESS CREDIT MACROECONOMICS PURCHASING POWER EXCHANGE MARKETS ARBITRAGE CONDITIONS AGGREGATE DEMAND PARALLEL EXCHANGE RATES CONSUMERS AGRICULTURE ECONOMY Coppola, Andrea Lagerborg, Andresa Mustafaoglu, Zafer Estimating an Equilibrium Exchange Rate for the Argentine Peso
geographic_facet	Latin America & Caribbean Argentina
relation	Policy Research Working Paper;No. 7682
description	This paper assesses the equilibrium value of the Argentine peso exchange rate based on the country's economic fundamentals and compares it with the official exchange rate value. The paper estimates a behavioral equilibrium exchange rate model that allows for movements in the equilibrium real effective exchange rate based on changing economic fundamentals, using monthly data from 1980 to 2015. The analysis identifies four key fundamentals driving the equilibrium exchange rate in Argentina: terms of trade, productivity differentials, foreign currency reserves, and trade openness. Based on these fundamentals, before the exchange rate reunification that took place at the end of 2015, the Argentine peso was overvalued by 39 percent. The results are robust to alternative estimation approaches.
format	Working Paper
author	Coppola, Andrea Lagerborg, Andresa Mustafaoglu, Zafer
author_facet	Coppola, Andrea Lagerborg, Andresa Mustafaoglu, Zafer
author_sort	Coppola, Andrea
title	Estimating an Equilibrium Exchange Rate for the Argentine Peso
title_short	Estimating an Equilibrium Exchange Rate for the Argentine Peso
title_full	Estimating an Equilibrium Exchange Rate for the Argentine Peso
title_fullStr	Estimating an Equilibrium Exchange Rate for the Argentine Peso
title_full_unstemmed	Estimating an Equilibrium Exchange Rate for the Argentine Peso
title_sort	estimating an equilibrium exchange rate for the argentine peso
publisher	World Bank, Washington, DC
publishDate	2016
url	http://documents.worldbank.org/curated/en/2016/05/26401101/estimating-equilibrium-exchange-rate-argentine-peso http://hdl.handle.net/10986/24523
_version_	1764456942558773248

Estimating an Equilibrium Exchange Rate for the Argentine Peso

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