Real exchange rate misalignments

This paper investigates episodes of real exchange rate appreciations and depreciations for a sample of 85 countries from 1960 to 1998. A Markov Switching Model is used to characterize real exchange rate misalignment series as stochastic autoregressive processes governed by two states corresponding to different means and variances. Our main findings are: first, some countries present no evidence of distinct misalignment regimes; second, for some countries there is no RER misalignment in one of the regimes; and, third, for the countries with two misalignment regimes, the appreciated regime has higher persistence than the depreciated one.