On the Determinants of Exchange Rate Misalignments

The literature on exchange rate misalignments (ERM) is very extensive as well as the literature on exchange rate determinants. To our knowledge, however, no study has analyzed the determinants of exchange rate misalignments. With the increasing movements of capital flows observed since the climax of the crisis, the ERM are became a crucial issue for policy makers. For a large panel of emerging and industrialized countries and on the period 1982-2008, we identify, empirically, the main determinants of ERM obtained by a Fundamental Equilibrium Exchange Rate (FEER) approach (Aflouk et al., 2010). Our analysis put forward trade openness, the nature of international specialization and exchange rate regime, combined with the degree of financial liberalization as determinant variables of ERM.