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Estimates of Fundamental Equilibrium Exchange Rates, May 2012

Author

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  • William R. Cline

    (Peterson Institute for International Economics)

  • John Williamson

    (Peterson Institute for International Economics)

Abstract

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.

Suggested Citation

  • William R. Cline & John Williamson, 2012. "Estimates of Fundamental Equilibrium Exchange Rates, May 2012," Policy Briefs PB12-14, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb12-14
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    File URL: https://www.piie.com/publications/policy-briefs/estimates-fundamental-equilibrium-exchange-rates-may-2012
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    2. William R. Cline & John Williamson, 2010. "Estimates of Fundamental Equilibrium Exchange Rates, May 2010," Policy Briefs PB10-15, Peterson Institute for International Economics.
    3. William R. Cline, 2008. "Estimating Consistent Fundamental Equilibrium Exchange Rates," Working Paper Series WP08-6, Peterson Institute for International Economics.
    4. Mr. Luca A Ricci & Mr. Jonathan David Ostry & Mr. Jaewoo Lee & Mr. Alessandro Prati & Mr. Gian M Milesi-Ferretti, 2008. "Exchange Rate Assessments: CGER Methodologies," IMF Occasional Papers 2008/002, International Monetary Fund.
    5. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47, January.
    6. William R. Cline & John Williamson, 2011. "Estimates of Fundamental Equilibrium Exchange Rates, May 2011," Policy Briefs PB11-5, Peterson Institute for International Economics.
    7. Edwin M. Truman, 2010. "Strengthening IMF Surveillance: A Comprehensive Proposal," Policy Briefs PB10-29, Peterson Institute for International Economics.
    8. William R. Cline & John Williamson, 2008. "New Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB08-7, Peterson Institute for International Economics.
    9. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2018. "Dealing with the consequences of exchange rate misalignments for macroeconomic adjustments in the EMU," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 737-767, November.
    2. William R. Cline, 2013. "Estimates of Fundamental Equilibrium Exchange Rates, November 2013," Policy Briefs PB13-29, Peterson Institute for International Economics.
    3. Yin-Wong Cheung & Shi He, 2019. "Truths and Myths About RMB Misalignment: A Meta-analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 464-492, September.
    4. Issiaka Coulibaly, 2014. "Competitiveness and growth within the CFA franc zone: Does the switch to the Euro matter?," International Economics, CEPII research center, issue 139, pages 1-18.
    5. William R. Cline, 2015. "Estimates of Fundamental Equilibrium Exchange Rates, May 2015," Policy Briefs PB15-8, Peterson Institute for International Economics.
    6. Erik Alencar de Figueiredo & André de Mattos Marques, 2013. "Testing absolute PPP hypothesis for twenty countries through the skeleton from a SETAR model- some new evidence," Série Textos para Discussão (Working Papers) 16, Programa de Pós-Graduação em Economia - PPGE, Universidade Federal da Paraíba.
    7. William R. Cline & John Williamson, 2012. "Updated Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB12-23, Peterson Institute for International Economics.
    8. Cristina Manteu, 2012. "On International Policy Coordination and the Correction of Global Imbalances," Working Papers w201214, Banco de Portugal, Economics and Research Department.
    9. Raquel Almeida Ramos, 2012. "Financial Flows and Exchange Rates: Challenges Faced by Developing Countries," Working Papers 97, International Policy Centre for Inclusive Growth.
    10. Jan Priewe, 2018. "A time bomb for the Euro? Understanding Germany's current account surplus," IMK Studies 59-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. William R. Cline, 2014. "Estimates of Fundamental Equilibrium Exchange Rates, May 2014," Policy Briefs PB14-16, Peterson Institute for International Economics.
    12. Issiaka Coulibaly, 2013. "Competitiveness and growth within the CFA franc zone: does the switch to the euro matter?," Erudite Working Paper 2013-04, Erudite.
    13. repec:cii:cepiei:2014-q3-139-1 is not listed on IDEAS
    14. 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.
    15. Jan Priewe, 2016. "The enigmatic dollar-euro exchange rate and the world's biggest forex market - performance, causes, consequences," IMK Studies 49-2016, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    16. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
    17. William R. Cline, 2014. "Estimates of Fundamental Equilibrium Exchange Rates, November 2014," Policy Briefs PB14-25, Peterson Institute for International Economics.
    18. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]," MPRA Paper 51332, University Library of Munich, Germany.
    19. James Graham & Daan Steenkamp, 2012. "Extending the Reserve Bank’s macroeconomic balance model of the exchange rate," Reserve Bank of New Zealand Analytical Notes series AN2012/08, Reserve Bank of New Zealand.
    20. William R. Cline, 2013. "Estimates of Fundamental Equilibrium Exchange Rates, May 2013," Policy Briefs PB13-15, Peterson Institute for International Economics.
    21. Yoonbai Kim & Gil Kim, 2012. "The Renminbi Debate: A Review of Issues and Search for Resolution," Chapters, in: Jehoon Park & T. J. Pempel & Geng Xiao (ed.), Asian Responses to the Global Financial Crisis, chapter 4, Edward Elgar Publishing.

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