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2009 Estimates of Fundamental Equilibrium Exchange Rates

Author

Listed:
  • William R. Cline

    () (Peterson Institute for International Economics)

  • John Williamson

    () (Peterson Institute for International Economics)

Abstract

Cline and Williamson update their estimates of fundamental equilibrium exchange rates (FEERs) for leading advanced and emerging-market economies. This policy brief is a sequel to Policy Brief 08-7, published last July, and is based on the latest developments in the world economy. The authors, refining their methodology from last year, estimate a set of current account targets for 34 countries. On the basis of these estimates, they calculate the bilateral exchange rates against the dollar needed to meet these targets, using Cline's symmetric matrix inversion method (SMIM) first presented in Working Paper 08-6. The authors find significant changes in calculated FEERs from their estimates last year. These changes are due in part to the world financial crisis, which created a significant safe-haven effect for the dollar and led to sharp declines in oil prices. As a result of these developments, the dollar has returned to significant overvaluation of about 17 percent: Every currency examined needs to appreciate against the dollar. While some imbalances with Europe have reemerged since last year, the major imbalance remains vis-à-vis certain Asian currencies, particularly the Chinese renminbi, which needs to rise by about 20 percent on a trade-weighted average basis and by about 40 percent against the dollar. Finally, the authors compare their 2009 FEERs estimates with their estimates from last year in order to assess the accuracy and validity of FEERs estimation.

Suggested Citation

  • William R. Cline & John Williamson, 2009. "2009 Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB09-10, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb09-10
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    Cited by:

    1. 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;Western Agricultural Economics Association.
    2. repec:bla:chinae:v:25:y:2017:i:1:p:32-57 is not listed on IDEAS
    3. Luigi Bonatti & Andrea Fracasso, 2010. "Global Rebalancing and the Future of the Sino-US Codependency," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 70-87.
    4. Carolina Arteaga & Roderick Luna & Jair Ojeda-Joya, 2011. "Normas de cuenta corriente y tasa de cambio real de equilibrio en Colombia," Borradores de Economia 681, Banco de la Republica de Colombia.
    5. Gábor, Tamás & Kiss, Gábor Dávid & Kovács, Péter, 2012. "A monetáris sterilizáció hatékonysága és költségei Kínában
      [The efficiency and costs of monetary sterilization in China]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 164-188.
    6. Zhibai Zhang & Langnan Chen & Xinyue Zou, 2015. "RMB Undervaluation and Appreciation," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(12), pages 1267-1281, December.
    7. Gábor, Tamás, 2012. "China's monetary sterilization and it's economical relationship with the European Union," MPRA Paper 40362, University Library of Munich, Germany.
    8. repec:wsi:ceprxx:v:03:y:2014:i:02:n:s1793969014500101 is not listed on IDEAS
    9. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," International Economics, CEPII research center, issue 121, pages 25-58.
    10. 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.
    11. Gunther Schnabl, 2011. "The role of the chinese dollar peg for macroeconomic stability in China and the world economy," Global Financial Markets Working Paper Series 13-2010, Friedrich-Schiller-University Jena.
    12. Rulu Huang, 2012. "Studies on the Change Mechanism of RMB Exchange Rate with Non-Recurrent Events," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(1), pages 49-56, January.
    13. Herrerias, M.J. & Orts, Vicente, 2011. "Imports and growth in China," Economic Modelling, Elsevier, vol. 28(6), pages 2811-2819.
    14. Gunther Schnabl, 2017. "Exchange Rate Regime, Financial Market Bubbles and Long-term Growth in China: Lessons from Japan," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 25(1), pages 32-57, January.
    15. Nabil Aflouk & Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2011. "Exchange Rate Misalignments and World Imbalances: a FEER Approach for Emerging Countries," Post-Print halshs-00484808, HAL.
    16. repec:taf:rjapxx:v:16:y:2011:i:4:p:644-657 is not listed on IDEAS
    17. Carton, Benjamin & Hervé, Karine, 2012. "Estimation of consistent multi-country FEERs," Economic Modelling, Elsevier, vol. 29(4), pages 1205-1214.
    18. Robert A. Blecker, 2009. "Long-Run Growth in Open Economies: Export-Led Cumulative Causation or a Balance-of-Payments Constraint?," Working Papers 2009-23, American University, Department of Economics.
    19. Denis V. Kadochnikov, 2013. "Gustav Cassel's purchasing power parity doctrine in the context of his views on international economic policy coordination," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 20(6), pages 1101-1121, December.
    20. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2012. "The macroeconomic impacts of Chinese currency appreciation on China and the rest of world : A global computable general equilibrium analysis," IFPRI discussion papers 1178, International Food Policy Research Institute (IFPRI).

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