Real exchange rate misalignment and economy
Abstract
Purpose
The purpose of this paper is to examine the impact of real exchange rate misalignment on economy and economic sectors, namely construction, manufacturing and mining and quarrying in Malaysia.
Design/methodology/approach
The equilibrium real exchange rate and economic models are estimated using the autoregressive distributed lag approach.
Findings
An increase in productivity differential or reserve differential will lead to an appreciation of real exchange rate in the long run. An increase in positive (negative) real exchange rate misalignment will lead to an increase (decrease) in economy. An increase in long-run real exchange rate misalignment will lead to a decrease in economy. Real exchange rate misalignment or long-run real exchange rate misalignment can influence the manufacturing sector in Malaysia. More specifically, undervaluation will promote whereas overvaluation will hurt the manufacturing sector.
Originality/value
Real exchange rate misalignment can be a policy to influence economy but may not be the best choice.
Keywords
Acknowledgements
The author would like to thank the reviewers of the journal as well as Mohsen Bahmani-Oskooee for their constructive comments on an early version of the paper. Finally, the author thanks financial support from the grant of Universiti Malaysia Sabah (SBK0328-2017). The author of this paper has not made their research data set openly available. Any enquiries regarding the data set can be directed to the corresponding author.
Citation
Wong, H.T. (2019), "Real exchange rate misalignment and economy", Journal of Economic Studies, Vol. 46 No. 1, pp. 211-227. https://doi.org/10.1108/JES-07-2017-0181
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited