Estimates of Fundamental Equilibrium Exchange Rates, May 2012
AbstractCline and Williamson calculate a new set of fundamental equilibrium exchange rates (FEERs) based on the new round of International Monetary Fund (IMF) projections in the spring 2012 World Economic Outlook. These show that on a trade-weighted basis the US dollar is now overvalued by 3–4 percent, while the Chinese renminbi is undervalued 3–4 percent. Both misalignments are much lower than in previous years (6 percent overvaluation and 16 percent undervaluation respectively a year ago). Because of the large roles of China and the United States in global imbalances, the GDP-weighted absolute value of divergence from FEERs has fallen from 8.4 percent in 2009 to 2.6 percentage points in April 2012. In contrast, large imbalances and misalignments have persisted in a number of smaller economies, including Australia, New Zealand, South Africa, and Turkey on the deficit side and Hong Kong, Malaysia, Singapore, Sweden, Switzerland, and Taiwan on the surplus side.
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Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB12-14.
Date of creation: May 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-CBA-2012-05-29 (Central Banking)
- NEP-MON-2012-05-29 (Monetary Economics)
- NEP-OPM-2012-05-29 (Open Economy Macroeconomic)
- NEP-SEA-2012-05-29 (South East Asia)
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