 |
 |
 |
 |
 |
 |
 |
research institution devoted to the study of international economic policy. More › ›
subscribe
Keep up to date with Peterson Institute publications, events, and interviews via email, podcast, or RSS. More information on subscription options.
- Peterson Institute Update Newsletter (email)
- Peterson Institute Update Newsletter (RSS)
- Peterson Institute Update
- RealTime Economic Issues Watch
- Event Podcast
- Peterson Perspectives: Interviews on Current Issues
Follow us
 |
 |
 |
Use filters to narrow your search through our publications and events.
translate
Working Paper 08-6
Estimating Consistent Fundamental Equilibrium Exchange Rates
by William R. Cline, Peterson Institute for International Economics
July 2008
This paper develops a new symmetric matrix inversion method for estimating consistent fundamental equilibrium exchange rates (FEERs) for leading advanced and emerging-market economies. It is symmetric in that it gives equal weight to the current account adjustment targets of all economies considered. The method involves first identifying desired changes in current account balances, then arriving at a set of parameters for the response of current account balances to real effective exchange rate changes. With the current account target and exchange rate response parameter in hand for each country (or region), it is possible to directly calculate the change in effective exchange rate needed to obtain the target change in current account. Matrix inversion is then used to identify a set of changes in bilateral exchange rates against the dollar that will generate a set of changes in multilateral (trade-weighted) effective exchange rates that is as close as possible to the targets desired.
The numerical estimates here draw on the International Monetary Fund's April 2008 World Economic Outlook forecasts of baseline current accounts and apply normative current account targets suggested in Policy Brief 08-7 by Cline and John Williamson as the basis for calculating the needed changes in exchange rates. The policy brief further discusses the grounds for identifying the target current account balances, adds two variants to the current account adjustment targets considered, and examines the policy implications of the results.
View full document [pdf]
RELATED INTERVIEWS
RELATED LINKS
Working Paper 13-2: The Elephant Hiding in the Room: Currency Intervention and Trade Imbalances March 2013
Policy Brief 12-25: Currency Manipulation, the US Economy, and the Global Economic Order December 2012
Policy Brief 08-7: New Estimates of Fundamental Equilibrium Exchange Rates July 2008
Working Paper 12-19: The Renminbi Bloc Is Here: Asia Down, Rest of the World to Go? October 2012
Policy Brief 12-19: Combating Widespread Currency Manipulation July 2012
Policy Brief 12-7: Projecting China's Current Account Surplus April 2012
Working Paper 12-4: Spillover Effects of Exchange Rates: A Study of the Renminbi March 2012
Op-ed: Taxing China's Assets: How to Increase US Employment Without Launching a Trade War April 25, 2011
Op-ed: Why the World Needs Three Global Currencies February 15, 2011
Policy Brief 10-24: The Central Banker's Case for Doing More October 2010
Policy Brief 10-26: Currency Wars? November 2010
Congressional Testimony: Correcting the Chinese Exchange Rate September 15, 2010
Op-ed: New Imbalances Will Threaten Global Recovery June 10, 2010
Article: The Dollar and the Deficits: How Washington Can Prevent the Next Crisis November 2009
Policy Brief 09-21: The Future of the Dollar September 2009
Policy Brief 09-20: Why SDRs Could Rival the Dollar September 2009
Policy Brief 07-4: Global Imbalances: Time for Action March 2007
Working Paper 11-14: Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition September 2011
Peterson Perspective: Legislation to Sanction China: Will It Work? October 7, 2011