Estimating the degree of exchange rate misalignment remains one of the most challenging empirical problems in open-economy. A fundamental difficulty is that the equilibrium value of the real exchange rate is not observable. Standard theory tells us, however, that the equilibrium real exchange rate is a function of observable macroeconomic variables, and that the actual real exchange rate approaches the equilibrium rate over time. A recent strand of the empirical literature exploits these

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... tions to develop a single-equation approach to estimating the equilibrium real exchange rate. Drawing on this earlier work, we outline an econometric methodology for estimating both the equilibrium real exchange rate and the degree of misalignment and illustrate the methodology using annual data from Côte d'Ivoire and Burkina Faso.