Estimates of Fundamental Equilibrium Exchange Rates, May 2012
Cline and Williamson calculate a new set of fundamental equilibrium exchange rates (FEERs) based on the new round of International Monetary Fund (IMF) projections in the spring 2012 World Economic Outlook. These show that on a trade-weighted basis the US dollar is now overvalued by 3–4 percent, while the Chinese renminbi is undervalued 3–4 percent. Both misalignments are much lower than in previous years (6 percent overvaluation and 16 percent undervaluation respectively a year ago). Because of the large roles of China and the United States in global imbalances, the GDP-weighted absolute value of divergence from FEERs has fallen from 8.4 percent in 2009 to 2.6 percentage points in April 2012. In contrast, large imbalances and misalignments have persisted in a number of smaller economies, including Australia, New Zealand, South Africa, and Turkey on the deficit side and Hong Kong, Malaysia, Singapore, Sweden, Switzerland, and Taiwan on the surplus side.
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9908, National Bureau of Economic Research, Inc.
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- Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments; CGER Methodologies," IMF Occasional Papers 261, International Monetary Fund.
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