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Estimates of Fundamental Equilibrium Exchange Rates, May 2011

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Author Info

  • William R. Cline

    ()
    (Peterson Institute for International Economics)

  • John Williamson

    ()
    (Peterson Institute for International Economics)

Abstract

This policy brief updates Cline and Williamson's estimates of fundamental equilibrium exchange rates (FEERs) to April 2011. Most currencies appear to have been reasonably close to their FEERs in April 2011. The most important exceptions are China, on the weak side, and the United States, on the strong side. The countries that need to seek weaker effective rates are those with large current account deficits: Australia and New Zealand, South Africa, Turkey, (marginally) Poland and Hungary, and the United States and Brazil. These are countries with floating exchange rates that have been pushed to an overvalued level by (in most cases) capital mobility and the carry trade, reinforced in the case of the United States by the dollar's role as the currency to which many other countries peg combined with the decision of some other countries to peg their rates at an undervalued level. The countries that need to revalue their effective rates are primarily Asian: China and countries that make it a priority to avoid losing competitiveness versus China (Hong Kong, Malaysia, Singapore, and Taiwan). The authors' calculations show the need for a slightly larger effective revaluation of the Chinese currency, the renminbi, this year (17.6 percent) than last (15.3 percent) and a larger appreciation of the renminbi in terms of the dollar (28.5 percent rather than 24.2 percent).

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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB11-5.

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Date of creation: May 2011
Date of revision:
Handle: RePEc:iie:pbrief:pb11-5

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Cited by:
  1. Duwicquet, Vincent & Mazier, Jacques & Saadaoui, Jamel, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution: How to Adjust in a Monetary Union," MPRA Paper 48697, University Library of Munich, Germany.
  2. Elisabeth Beusch & Barbara Döbeli & Andreas M. Fischer & Pinar Yesin, 2013. "Merchanting and current account balances," Globalization and Monetary Policy Institute Working Paper 140, Federal Reserve Bank of Dallas.
  3. 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.
  4. Guzin BAYAR & Selman TOKPUNAR, 2013. "Turk Lirasi Reel Kuru Denge Degerinde Mi?," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 13(4), pages 405-426.
  5. Jamel Saadaoui, 2011. "Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates," Post-Print halshs-00593674, HAL.
  6. Asaf Akat & Ege Yazgan, 2013. "Observations on Turkey’s Recent Economic Performance," Atlantic Economic Journal, International Atlantic Economic Society, vol. 41(1), pages 1-27, March.
  7. Dominick, Salvatore, 2011. "The future tri-polar international monetary system," Journal of Policy Modeling, Elsevier, vol. 33(5), pages 776-785, September.
  8. Philip Levy, 2011. "The United States and the PRC : Macroeconomic Imbalances and Economic Diplomacy," Macroeconomics Working Papers 23208, East Asian Bureau of Economic Research.
  9. 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.
  10. Erik Alencar de Figueiredo & André de Mattos Marques, 2013. "Testing absolute PPP hypothesis for twenty countries through the skeleton from a SETAR model- some new evidence," Série Textos para Discussão (Working Papers) 16, Programa de Pós-Graduação em Economia - PPGE, Universidade Federal da Paraíba.
  11. Raquel Almeida Ramos, 2012. "Financial Flows and Exchange Rates: Challenges Faced by Developing Countries," Working Papers 97, International Policy Centre for Inclusive Growth.
  12. William R. Cline, 2012. "Projecting China's Current Account Surplus," Policy Briefs PB12-7, Peterson Institute for International Economics.
  13. Salvatore, Dominick, 2012. "Exchange rate misalignments and the present international monetary system," Journal of Policy Modeling, Elsevier, vol. 34(4), pages 594-604.

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