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The Current Currency Situation

  • William R. Cline

    ()

    (Peterson Institute for International Economics)

  • John Williamson

    ()

    (Peterson Institute for International Economics)

The currency markets have been extremely disturbed for the last three months. The period witnessed a major strengthening of the US dollar in September, then the European currency crisis, a recovery of the euro when the markets believed that the crisis was being controlled, and then a rebound of the dollar. In view of these developments, those who follow currency movements need a new guide as to how the current values of currencies compare to our estimates of fundamental equilibrium exchange rates (FEERs). The first section is devoted to a brief exposition of the main changes that have occurred since April, which our previous publication used as the benchmark. The second section updates information on the levels of effective exchange rates consistent with the FEER targets identified in our most recent estimates (Cline and Williamson 2011), as well as the FEER-consistent dollar rates as of late October. The third section steps outside our normal frame of reference in order to make some comments about the situation within Europe in view of the sovereign debt crisis currently raging there.

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Paper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB11-18.

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Date of creation: Nov 2011
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Handle: RePEc:iie:pbrief:pb11-18
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