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New Estimates of Fundamental Equilibrium Exchange Rates

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  • William R. Cline

    ()
    (Peterson Institute for International Economics)

  • John Williamson

    ()
    (Peterson Institute for International Economics)

Abstract

Cline and Williamson present estimates of the fundamental equilibrium exchange rates (FEERs) of leading advanced and emerging-market economies: The US dollar remains significantly overvalued against a number of Asian currencies, most prominently the Chinese renminbi and, to a lesser extent, the Japanese yen. The euro and the pound are overvalued on a multilateral basis but have not overshot greatly against the dollar; the depreciation in their multilateral exchange rates should come largely from the appreciations of a number of Asian currencies if it is to contribute positively to the adjustment process. The Asian currencies that should appreciate most are the Singapore dollar, the Chinese renminbi, the Malaysian ringgit, the New Taiwan dollar, and the Japanese yen. The authors estimate the misalignment of currencies in 30 economies and find the set of exchange rates against the dollar needed to correct all these misalignments simultaneously. The estimates of misalignments are based on a set of current account targets that do not in general exceed 3 percent of GDP, whether deficits or surpluses. Adjustments needed to reach these targets are translated into needed exchange rate realignments using Cline's symmetric matrix inversion method (SMIM) model. This model is explained in detail in Working Paper 08-6 by Cline.

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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB08-7.

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Date of creation: Jul 2008
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Handle: RePEc:iie:pbrief:pb08-7

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Cited by:
  1. William R. Cline, 2008. "Estimating Consistent Fundamental Equilibrium Exchange Rates," Working Paper Series WP08-6, Peterson Institute for International Economics.
  2. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," Economie Internationale, CEPII research center, issue 121, pages 25-58.
  3. Bineau, Yannick, 2010. "Renminbi's misalignment: A meta-analysis," Economic Systems, Elsevier, vol. 34(3), pages 259-269, September.
  4. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031 Elsevier.
  5. Nabil Aflouk & Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments and International Imbalances a FEER Approach for Emerging Countries," Economie Internationale, CEPII research center, issue 124, pages 31-74.
  6. Pedro BAÇÃO & António Portugal DUARTE & Mariana SIMÕES, 2013. "The International Monetary System in Flux: Overview and Prospects," Chapters of Financial Aspects of Recent Trends in the Global Economy book, in: Rajmund Mirdala (ed.), Financial Aspects of Recent Trends in the Global Economy, volume 1, chapter 10, pages 192-206 ASERS Publishing.
  7. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
    [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]
    ," MPRA Paper 51332, University Library of Munich, Germany.
  8. Jeanne, Olivier, 2012. "The Dollar and its Discontents," CEPR Discussion Papers 9007, C.E.P.R. Discussion Papers.
  9. André Nassif & Carmem Feijó & Marco Antônio Silveira De Almeida, 2011. "Why Does Real Exchange Rate Overvalue Inbrazil? Theoretical Determinants, Empirical Evidence And Economicpolicy Dilemmas," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 237, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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