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Estimates of Fundamental Equilibrium Exchange Rates, May 2016

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  • William R. Cline

    (Peterson Institute for International Economics)

Abstract

The US dollar is overvalued by about 7 percent, approximately the same amount as estimated last year (May and November 2015). Divergent phases of monetary policy in the United States, on one hand, and the euro area and Japan, on the other, and a collapse in commodity prices drove the stronger dollar. After rising about 5 percent from October 2015 (the base of the November 2015 assessment) to January 2016, the real effective exchange rate of the dollar fell slightly below its October level by April 2016 (the base of the current estimates). This semiannual evaluation also finds the yen is slightly undervalued (by 3 percent) despite its recent strengthening, but there is no misalignment of the other two leading currencies, the euro and Chinese renminbi.

Suggested Citation

  • William R. Cline, 2016. "Estimates of Fundamental Equilibrium Exchange Rates, May 2016," Policy Briefs PB16-6, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb16-6
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    File URL: https://www.piie.com/publications/policy-briefs/estimates-fundamental-equilibrium-exchange-rates-may-2016
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    Cited by:

    1. Teodor Sedlarski & Ilia Atanasov & Alexandra Korcheva, 2023. "How Much is too Much? An Endogenous Growth Model with an Optimal Level of Informality," Bulgarian Economic Papers bep-2023-02, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Feb 2023.
    2. THORBECKE, Willem, 2016. "China's Electronics Exports, the Renminbi, and Exchange Rates in Supply Chain Countries," Discussion papers 16088, Research Institute of Economy, Trade and Industry (RIETI).
    3. Chen, Pei-Fen & Zeng, Jhih-Hong & Lee, Chien-Chiang, 2018. "Renminbi exchange rate assessment and competitors' exports: New perspective," China Economic Review, Elsevier, vol. 50(C), pages 187-205.
    4. 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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