misaligned exchange rate

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An exchange rate which is inconsistent with a satisfactory balance of payments. If a country's currency is priced too high, this makes imports excessively attractive and exports hard to sell, which is liable to result in an unsustainable current account deficit. Equally, if a currency is underpriced it tends to result in a current account surplus so large as to over-stimulate the economy.

Subjects: Economics.

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