| Abstract: |
This article analyzes the theory of equilibrium real exchangerates and defines misalignment as a deviation of the real exchangerate (RER) from its equilibrium level. The role of macroeconomicpolicies is then analyzed under three alternative nominal exchangerate regimes: predetermined nominal exchange rates, floatingnominal rates, and dual or black market nominal exchange rates.This discussion points out how inconsistent macroeconomic policiesoften lead to real exchange rate misalignment. Corrective measures,including nominal devaluations and several alternative approaches,are then evaluated. |
