Essays on exchange rate misalignments and exchange rate policy in developing and emerging economies.

Summary The objective of this thesis is to shed new light on some issues related to real exchange rate misalignments and exchange rate regimes in developing and emerging economies. In a first line of research, we re-examine the link between exchange rate misalignments and growth, incorporating a transmission channel known as "foreign currency debt". We show the existence of a financial channel of foreign currency debt through which exchange rate misalignments exert an opposite effect on growth than the traditional channel of price competitiveness. Furthermore, we highlight the role played by the exchange rate regime in the exchange rate misalignment-growth relationship and the importance of the compatibility of the prevailing monetary regime with the structure of foreign currency debt. In the second line of research, we focus on the effectiveness of exchange rate policy in preventing/correcting exchange rate misalignments. We first show that, as things stand, it is difficult to establish a robust relationship between exchange rate regimes and exchange rate misalignments, partly because of the different definitions of monetary regimes adopted by de facto classifications of exchange rate regimes. In particular, only classifications that distinguish between flawed currency regimes can discriminate the performance of exchange rate regimes in terms of exchange rate misalignments. Finally, we show that the pass-through of nominal exchange rate changes to the real exchange rate is not systematically related to the magnitude of the nominal adjustment but depends strongly on the initial distortion of the real exchange rate.