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Begin New Search Topic Foreign Exchange Author William R. Cline

1. Estimates of Fundamental Equilibrium Exchange Rates, November 2014

Author:
William R. Cline
Publication Date:
11-2014
Content Type:
Policy Brief
Institution:
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.
Topic:
Economics, Foreign Exchange, International Trade and Finance, and Monetary Policy
Political Geography:
Africa, United States, Japan, Turkey, South Africa, Brazil, and New Zealand

2. Estimates of Fundamental Equilibrium Exchange Rates, November 2013

Author:
William R. Cline
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Since the previous estimates of fundamental equilibrium exchange rates (FEERs) in this series in May (Cline 2013), numerous exchange rates have moved substantially in response to the announcement in late May that the US Federal Reserve would likely begin to "taper" its quantitative easing program of large-scale asset purchases. The new estimates here again take as their point of departure the medium-term current account projections of the most recent World Economic Outlook (WEO) of the International Monetary Fund (IMF 2013b). However, because of a seeming inertia in the Fund's projections despite large exchange rate moves, this round of calculations pays special attention to compiling alternative estimates for economies with large changes in exchange rates.
Topic:
Economics, Foreign Exchange, International Trade and Finance, Markets, Monetary Policy, and Governance
Political Geography:
United States

3. Estimates of Fundamental Equilibrium Exchange Rates, May 2012

Author:
William R. Cline and John Williamson
Publication Date:
05-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
This Policy Brief updates our estimates of fundamental equilibrium exchange rates (FEERs) to the latest available data. For exchange rates, we apply the average rates of April 2012, while for the International Monetary Fund's balance of payments forecasts, we use the April 2012 issue of the World Economic Outlook (henceforth WEO; see IMF 2012a). This study is the fifth in an annual series, begun in 2008, in which we have used the spring WEO as the basis for drawing out implications for exchange rate changes needed if the world is to approach a reasonably satisfactory medium-run position. In addition, in semiannual updates (most recently in November 2011), we have tracked interim changes in exchange rates but not reestimated the underlying FEERs for the year in question.
Topic:
International Relations, Economics, Foreign Exchange, International Trade and Finance, and Financial Crisis

4. Projecting China's Current Account Surplus

Author:
William R. Cline
Publication Date:
04-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
For several years China has run persistent current account surpluses that have been widely seen as the most serious single source of global imbalances on the surplus side, and mirrored by persistent systemically large US current account deficits on the other side. In recent years, however, both imbalances have shown moderation (figure 1). China's surpluses have posed questions of international policy rules, because they have reflected in part an unwillingness to allow the exchange rate to appreciate sufficiently to act as an effective equilibrating mechanism. Exchange rate intervention resulted in a massive buildup of international reserves, which rose from $615 billion at the end of 2004 to $3.2 trillion at the end of 2011 (IMF 2012a).
Topic:
Economics, Emerging Markets, Foreign Exchange, and International Trade and Finance
Political Geography:
United States, China, and Israel

5. Notes on Equilibrium Exchange Rates: January 2010

Author:
William R. Cline and John Williamson
Publication Date:
01-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In June 2009 we issued our annual update of estimates of fundamental equilibrium exchange rates (FEERs) for 34 major economies (Cline and Williamson 2009). At that time the dollar had already begun correction from the substantial overvaluation that had arisen from the strong safe-haven effect associated with the global financial crisis of 2008–09. In this policy brief we report on changes in disequilibria in the exchange markets since the date those earlier calculations referred to, namely March 2009. We first present estimates of the extent of movement toward FEER-consistent bilateral dollar exchange rates from March to December 31, 2009, and then look at how effective exchange rates have altered in the same period. We also re-estimate the FEER-consistent dollar rate for one important currency, the Korean won.
Topic:
Economics, Foreign Exchange, International Political Economy, and Monetary Policy
Political Geography:
Korea

6. Estimating Consistent Fundamental Equilibrium Exchange Rates

Author:
William R. Cline
Publication Date:
07-2008
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper sets forth a new methodology for obtaining a consistent set of exchange rate realignments needed to accomplish international adjustment in current account imbalances to reach fundamental equilibrium exchange rates (FEERs). The approach is named the symmetric matrix inversion method (SMIM). It is symmetric in that ir treats all countries considered equally rather than seeking exact adjustment for the United States and obtaining other adjustments residually. Country-specific impact parameters based on assumed trade elasticities are applied to a target set of changes in current accounts as percentages of GDP to obtain a corresponding set of target changes in real effective (trade-weighted) exchange rates. A matrix inversion technique is then applied to identify the corresponding set of changes in bilateral exchange rates against the dollar needed to approach as closely as possible the target set of effective exchange rate changes.
Topic:
Economics and Foreign Exchange
Political Geography:
United States

7. New Estimates of Fundamental Equilibrium Exchange Rates

Author:
William R. Cline and John Williamson
Publication Date:
07-2008
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
From early in its existence, the Peterson Institute for International Economics has occasionally produced estimates of the fundamental equilibrium exchange rates (FEERs) of major currencies. We have long felt that there would be value in regularly producing such numbers, so that observers had a metric with which tojudge ongoing changes in exchange rates but were deterred from producing such estimates by the difficulties and expense involved in making estimates of FEERs in the absence of a working model. There are, of course, floating fundamentalists who regard such an exercise as superfluous, because the market is by definition always right.
Topic:
Economics and Foreign Exchange