New Estimates of Fundamental Equilibrium Exchange Rates
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.
|Date of creation:||Jul 2008|
|Contact details of provider:|| Postal: 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903|
Web page: http://www.piie.com
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:iie:pbrief:pb08-7. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.