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Evaluating Historical CGER Assessments

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Author Info

  • Jungjin Lee
  • Abdul Abiad
  • Prakash Kannan

Abstract

The IMF''s Consultative Group on Exchange Rate issues (CGER) has been conducting exchange rate assessments as part of the surveillance process since 1997. This paper evaluates CGER assessments from 1997 to 2006, by comparing these to subsequent movements in real effective exchange rates (REER). We find that CGER''s estimated misalignments have predictive power over future REER movements, especially over longer horizons and after changes in fundamentals are accounted for. But while CGER misalignments frequently predict the direction of currency movements correctly, misalignments have tended to be persistent, resulting in systematic errors-overprediction for undervalued currencies and underprediction for overvalued currencies.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/32.

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Length: 27
Date of creation: 01 Feb 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/32

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Related research

Keywords: Exchange rates; Exchange rate assessments; Developed countries; Emerging markets; Exchange rate policy surveillance; Real effective exchange rates; Current account balances; Economic models; exchange rate; statistic; prediction; real exchange rate; statistics; random walk; exchange rate movements; correlation; covariance; exchange rate misalignments; current account balance; real exchange rates; forecasting; exchange rate changes; mean square; exchange rate adjustment; current accounts; equations; exchange rate misalignment; predictions; equilibrium exchange rate; effective exchange rates; samples; prevailing exchange rates; horizontal axis; binomial distribution; equation; real exchange rate changes; standard deviations; standard errors; significance level; real exchange rate movements; effective exchange rate; financial statistics; survey; computation; exchange rate policy; outliers; estimation procedure; econometrics; forward exchange; forward exchange rates; regression equation; real effective exchange rate; correlations; exchange rate policies; empirical exercise; sample mean; exchange rate overvaluation;

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References

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  1. Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195211269, October.
  2. Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003. "Commodity Currencies and the Real Exchange Rate," Working Papers Central Bank of Chile, Central Bank of Chile 236, Central Bank of Chile.
  3. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, Elsevier, vol. 60(1), pages 133-160, May.
  4. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(5), pages 829-53, October.
  5. Allan Timmermann, 2006. "An Evaluation of the World Economic Outlook Forecasts," IMF Working Papers 06/59, International Monetary Fund.
  6. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment," IMF Occasional Papers 167, International Monetary Fund.
  7. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(3), pages 253-63, July.
  8. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
  9. Craig Burnside & Martin Eichenbaum & Isaac Kleshchelski & Sergio Rebelo, 2006. "The Returns to Currency Speculation," NBER Working Papers 12489, National Bureau of Economic Research, Inc.
  10. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, Elsevier, vol. 14(1-2), pages 3-24, February.
  12. Luca Antonio Ricci & Jaewoo Lee & Gian-Maria Milesi-Ferretti, 2008. "Real Exchange Rates and Fundamentals," IMF Working Papers 08/13, International Monetary Fund.
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Citations

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Cited by:
  1. Irineu E. Carvalho Filho & Rudolfs Bems, 2009. "Exchange Rate Assessments," IMF Working Papers 09/281, International Monetary Fund.
  2. Durand, C. & Lopez, C., 2012. "Taux de change d’équilibre et mesure de la compétitivité au sein de la zone euro," Bulletin de la Banque de France, Banque de France, Banque de France, issue 190, pages 125-134.
  3. Bassem Kamar & Jean-Etienne Carlotti & Russell C. Krueger, 2009. "Establishing Conversion Values for New Currency Unions," IMF Working Papers 09/184, International Monetary Fund.
  4. Bussière, Matthieu & Ca' Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2010. "Methodological advances in the assessment of equilibrium exchange rates," Working Paper Series, European Central Bank 1151, European Central Bank.
  5. Jordi Prat & Leandro Medina & Alun H. Thomas, 2010. "Current Account Balance Estimates for Emerging Market Economies," IMF Working Papers 10/43, International Monetary Fund.

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