Real Exchange Rate Misalignments and U.S. Exports to Asia

Abstract

This paper examines real exchange rate misalignments in seven Asian countries and their impacts on U.S. exports. An analytical framework is first developed to estimate real exchange rate misalignments and, based on an autoregressive distributed lag (ARDL) bound testing approach, the long and short run relationships between U.S. exports and its key determinants are estimated. The empirical results indicate that real exchange rates are moderately misaligned in most of the Asian countries. A negative and significant long run relationship between real exchange rate misalignment and U.S. exports to each country is also detected. The results also show that real exchange rate continues to maintain its position as one of the important factors explaining international trade.