Misalignment of Real Exchange Rate: The Case of a Developing Economy

The paper seeks to analyze various contemporary theories in the measurement of real exchange rates and the associated problematics involved in each case particularly for a developing economy. It then focuses on the estimation of real exchange rate for the developing economy of Turkey using the world price index as the basis of measurement. The misalignment of Turkey’s real exchange rate is calculated with reference to the equilibrium real exchange rate. The paper comes to the broad conclusion that for an inordinately long time, Turkey had been suffering from the problem of appreciated real exchange rate, and the trend continues unabated till recent years.