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Estimates of Fundamental Equilibrium Exchange Rates, November 2014

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  • William R. Cline

    (Peterson Institute for International Economics)

Abstract

This semiannual review finds that most of the major international currencies, including the US dollar, euro, Japanese yen, UK pound sterling, and Chinese renminbi, remain close to their fundamental equilibrium exchange rates (FEERs). The new estimates find this result despite numerous significant exchange rate movements associated with increased volatility in international financial markets at the beginning of the fourth quarter of 2014, and despite a major reduction in the price of oil. The principal cases of exchange rate misalignment continue to be the undervalued currencies of Singapore, Taiwan, and to a lesser extent Sweden and Switzerland, and the overvalued currencies of Turkey, New Zealand, South Africa, and to a lesser extent Australia and Brazil. Even so, the medium-term current account deficit for the United States is already at the outer limit in the FEERs methodology (3 percent of GDP), and if the combination of intensified quantitative easing in Japan and the euro area with the end to quantitative easing in the United States were to cause sizable further appreciation of the dollar, an excessive US imbalance could begin to emerge.

Suggested Citation

  • William R. Cline, 2014. "Estimates of Fundamental Equilibrium Exchange Rates, November 2014," Policy Briefs PB14-25, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb14-25
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    File URL: https://www.piie.com/publications/policy-briefs/estimates-fundamental-equilibrium-exchange-rates-november-2014
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    References listed on IDEAS

    as
    1. William R. Cline, 2008. "Estimating Consistent Fundamental Equilibrium Exchange Rates," Working Paper Series WP08-6, Peterson Institute for International Economics.
    2. C. Fred Bergsten & Gary Clyde Hufbauer & Sean Miner & Tyler Moran, 2014. "Bridging the Pacific: Toward Free Trade and Investment between China and the United States," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6918, July.
    3. William R. Cline, 2014. "Managing the Euro Area Debt Crisis," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6871, July.
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    Cited by:

    1. 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.
    2. Hsing, Yu, 2016. "Comparison of the Fundamental and Monetary Models of the Determinants of the Argentine Peso/US Dollar Exchange Rate," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 379-388.

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