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Updated Estimates of Fundamental Equilibrium Exchange Rates

Author

Listed:
  • William R. Cline

    (Peterson Institute for International Economics)

  • John Williamson

    (Peterson Institute for International Economics)

Abstract

In this semiannual update of their estimates of fundamental equilibrium exchange rates (FEERs), William R. Cline and John Williamson again find that the overvaluation of the dollar and undervaluation of the Chinese renminbi have become much more modest than in previous years, as their current account imbalances have narrowed. Seriously undervalued currencies now include those of Singapore, Taiwan, Hong Kong, and Malaysia, as well as the Swiss franc and Swedish krona. Serious overvaluation persists for Turkey, New Zealand, Australia, and (though less so than before) South Africa. The authors welcome the new External Sector Report of the International Monetary Fund, which generally finds the same directions of misalignment across currencies, with the notable exception of Switzerland. However, they criticize the Fund's methodology for conflating positive (observed pattern) and normative (systemically salutary) behavior, in particular by awarding high acceptable current account surplus targets, particularly to Singapore and Switzerland, because of financial center status and past accumulation of massive external assets.

Suggested Citation

  • William R. Cline & John Williamson, 2012. "Updated Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB12-23, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb12-23
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    File URL: https://www.piie.com/publications/policy-briefs/updated-estimates-fundamental-equilibrium-exchange-rates
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    References listed on IDEAS

    as
    1. Joseph E. Gagnon, 2012. "Combating Widespread Currency Manipulation," Policy Briefs PB12-19, Peterson Institute for International Economics.
    2. William R. Cline, 2008. "Estimating Consistent Fundamental Equilibrium Exchange Rates," Working Paper Series WP08-6, Peterson Institute for International Economics.
    3. William R. Cline & John Williamson, 2012. "Estimates of Fundamental Equilibrium Exchange Rates, May 2012," Policy Briefs PB12-14, Peterson Institute for International Economics.
    4. William R. Cline & John Williamson, 2008. "New Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB08-7, Peterson Institute for International Economics.
    5. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, October.
    6. C. Fred Bergsten & C. Randall Henning (ed.), 2012. "Global Economics in Extraordinary Times: Essays in Honor of John Williamson," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6628, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2018. "Dealing with the consequences of exchange rate misalignments for macroeconomic adjustments in the EMU," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 737-767, November.
    2. Yin-Wong Cheung & Shi He, 2019. "Truths and Myths About RMB Misalignment: A Meta-analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 464-492, September.
    3. Issiaka Coulibaly, 2014. "Competitiveness and growth within the CFA franc zone: Does the switch to the Euro matter?," International Economics, CEPII research center, issue 139, pages 1-18.
    4. Wen Si, 2015. "The Effects of Foreign Currency Derivatives on the Monetary Policy Exchange Rate Channel in China," International Economic Journal, Taylor & Francis Journals, vol. 29(2), pages 175-193, June.
    5. Ronald Ian McKinnon & Gunther Schnabl, 2014. "China's Exchange Rate and Financial Repression: The Conflicted Emergence of the Renminbi as an International Currency," CESifo Working Paper Series 4649, CESifo.
    6. Issiaka Coulibaly, 2013. "Competitiveness and growth within the CFA franc zone: does the switch to the euro matter?," Erudite Working Paper 2013-04, Erudite.
    7. repec:cii:cepiei:2014-q3-139-1 is not listed on IDEAS
    8. Vincent Duwicquet & Jacques Mazier & Pascal Petit & Jamel Saadaoui, 2015. "The Future of the Euro," Post-Print hal-01399157, HAL.
      • Duwicquet, Vincent & Mazier, Jacques & Petit, Pascal & Saadaoui, Jamel, 2015. "The future of the euro," MPRA Paper 67690, University Library of Munich, Germany.
    9. Ferdinand Owoundi & Jacques Landry Bikai, 2021. "On the neutrality of the exchange rate regime regarding real misalignments: Evidence from sub‐Saharan Africa," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 327-345, July.
    10. Luo, Ji & Williams, Gary W., 2015. "The Impacts of Chinese Exchange Rate Policy on World Soybean and Products Markets," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205075, Agricultural and Applied Economics Association.
    11. Jan Priewe, 2016. "The enigmatic dollar-euro exchange rate and the world's biggest forex market - performance, causes, consequences," IMK Studies 49-2016, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    12. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
    13. Nicholas R. Lardy & Nicholas Borst, 2013. "A Blueprint for Rebalancing the Chinese Economy," Policy Briefs PB13-2, Peterson Institute for International Economics.
    14. Pablo Duarte & Gunther Schnabl, 2015. "Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 531-544, August.
    15. Jamel Saadaoui, 2013. "Global Imbalances: Should We Use Fundamental Equilibrium Exchange Rates?," Post-Print halshs-00861163, HAL.

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