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Begin New Search Topic Monetary Policy Author William R. Cline

1. Estimates of Fundamental Equilibrium Exchange Rates, November 2015

Author:
William R. Cline
Publication Date:
11-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The latest semiannual fundamental equilibrium exchange rate (FEER) estimates find that the US dollar is now overvalued by about 10 percent, comparable to levels in 2008 through early 2010 and again in 2011. Unlike then, the current strong dollar does not reflect a weak renminbi kept undervalued by major exchange rate intervention by China. Instead, China's current account surplus has fallen sharply relative to GDP, and its recent intervention has been to prevent excessive depreciation rather than to prevent appreciation. Additionally, declines in the real effective exchange rates (REERs) for major emerging-market economies and resource-based advanced economies, driven by falling commodity prices in recent months, have strengthened the dollar. Recent increases in the REERs for the euro area and Japan have removed their modest undervaluation identified in the last FEERs estimates in May, and the Chinese renminbi remains consistent with its FEER. The dollar's rise by nearly 15 percent in real effective terms over the past two years could impose a drag of nearly one-half percent annually on US demand growth over the next five years. As the Federal Reserve moves to normalize US monetary policy, it may need to consider a gentler rise in interest rates than it might otherwise have pursued, both to temper possible further strengthening of the dollar in response to higher interest rates and to help offset the demand compression from falling net export
Topic:
Economics, International Trade and Finance, Monetary Policy, and GDP
Political Geography:
United States and China

2. 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

3. 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

4. Updated Estimates of Fundamental Equilibrium Exchange Rates

Author:
William R. Cline and John Williamson
Publication Date:
11-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In 2008 we introduced a semiannual series providing estimates of fundamental equilibrium exchange rates, or FEERs (Cline and Williamson 2008a). The economic concept of FEERs was first set forth by Williamson (1983). An operational method for arriving at multilaterally consistent estimates of FEERs was developed by Cline (2008) and has been applied over the past five years in this series of estimates. This issue marks the valedictory round of the series for Williamson, who is retiring.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Europe and Lisbon

5. Restoring Fiscal Equilibrium in the United States

Author:
William R. Cline
Publication Date:
06-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Halfway through this presidential election year, there is great uncertainty about how, when, and even whether the United States will restore fiscal sustainability. As shown by the near-default because of the impasse over the debt ceiling in July 2011, the two parties have been in sharp opposition on this issue. The Republicans have insisted that adjustment be accomplished by spending cuts rather than tax increases. Two hundred and thirty eight Republican congressmen and 41 Republican senators have signed the Grover Norquist pledge to oppose any attempt to raise marginal tax rates or reduce deductions without implementing offsetting tax reductions. In contrast, Democratic lawmakers have tended to emphasize the maintenance of social and entitlement programs and expressed a willingness to restore higher tax rates if necessary.
Topic:
Economics, Monetary Policy, Financial Crisis, Governance, and Law
Political Geography:
United States

6. Estimates of Fundamental Equilibrium Exchange Rates, May 2011

Author:
William R. Cline and John Williamson
Publication Date:
05-2011
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, which for exchange rates are the average rates of April 2011, and for the IMF's balance of payments forecasts, those published in the April 2011 issue of World Economic Outlook (WEO; see IMF 2011a). It is the central study in what has now become a regular annual cycle, in which we draw out what we believe to be the implications of the IMF's forecasts for the pattern that exchange rates need to take if the world is to approach a reasonably satisfactory medium-run position. This past year we also published an interim policy brief (Cline and Williamson 2010b) in which we updated our calculations to the average exchange rates of October 2010, as well as commented on Brazilian Finance Minister Guido Mantega's description of international monetary events as constituting "currency wars." As in the previous year, however, the November 2010 policy brief updated our estimates only for intervening changes in market exchange rates. We did not make use of the IMF's revised autumn WEO forecasts to update our estimates of FEERs; on the contrary, we assumed the FEERs estimated in May 2010 were correct. In contrast, this policy brief presents totally new estimates of FEERs.
Topic:
Economics and Monetary Policy
Political Geography:
United States and China

7. The Current Currency Situation

Author:
William R. Cline and John Williamson
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The currency markets have been extremely disturbed for the last three months. The period witnessed a major strengthening of the US dollar in September, then the European currency crisis, a recovery of the euro when the markets believed that the crisis was being controlled, and then a rebound of the dollar. In view of these developments, those who follow currency movements need a new guide as to how the current values of currencies compare to our estimates of fundamental equilibrium exchange rates (FEERs). That is the main object of this paper.
Topic:
Economics, Globalization, International Political Economy, and Monetary Policy
Political Geography:
United States and Europe

8. Renminbi Undervaluation, China's Surplus, and the US Trade Deficit

Author:
William R. Cline
Publication Date:
08-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
On June 21, 2010, in the run-up to the G-20 meeting in Toronto, China announced that it would shift to a more flexible exchange rate policy. From mid-June to July 30 the yuan rose 0.8 percent against the dollar. In contrast, the currency had remained fixed (at about 6.83 yuan to the dollar) from September 2008 to early June 2010. Pressure not only from the United States and the European Union but also from Russia, Brazil, and India as well as the IMF seems likely to have played a role in China's decision, although concerns about domestic inflation may also have been a factor.
Topic:
Economics and Monetary Policy
Political Geography:
United States and China

9. 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

10. Estimates of Fundamental Equilibrium Exchange Rates, May 2010

Author:
William R. Cline and John Williamson
Publication Date:
06-2010
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 issue of the World Economic Outlook (WEO) published by the International Monetary Fund in April 2010 (IMF 2010a). It is part of what has now become an annual cycle drawing out what we believe to be the implications of the IMF's forecasts for the pattern that exchange rates need to take if the world is to approach a reasonably satisfactory medium-run equilibrium position. This year we also published an interim report (Cline and Williamson 2010), partly drawing on the October 2009 WEO but essentially examining the implications of the pattern of market exchange rates as of January 1, 2010 for how misaligned currencies were at that time, assuming that the FEERs estimated in June 2009 were correct. In this publication we have estimated the FEERs anew on the basis of revisions in the methods employed and new data presented in the April 2010 WEO, after incorporating adjustments to the IMF forecast needed to take account of recent changes in exchange rates and especially the euro.
Topic:
International Relations, Economics, International Monetary Fund, and Monetary Policy