Misalignment of the Baht, Trade Imbalances and the Crisis in Thailand

This paper examines Thailand's exchange rate policy, focusing on the degree of the country's real exchange rate misalignment pre-crisis, and their consequent effects on Thailand's trade balance with its two large trading partners, the US and Japan. We estimate misalignment as the difference between actual and "equilibrium" exchange rates. We use three key "equilibrium" exchange rates of the Thai baht, viz. the real effective equilibrium exchange rate of the Thai baht against its twenty two major trading partners; the bilateral real equilibrium exchange rates of the baht against the US dollar; and the bilateral real equilibrium exchange rate of the baht against the Japanese yen. Our sample period spans two decades (Q1: 1981 to Q3: 1999)