IDEAS home Printed from https://ideas.repec.org/p/iie/wpaper/wp08-6.html
   My bibliography  Save this paper

Estimating Consistent Fundamental Equilibrium Exchange Rates

Author

Listed:
  • William R. Cline

    (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.

Suggested Citation

  • William R. Cline, 2008. "Estimating Consistent Fundamental Equilibrium Exchange Rates," Working Paper Series WP08-6, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp08-6
    as

    Download full text from publisher

    File URL: https://www.piie.com/publications/working-papers/estimating-consistent-fundamental-equilibrium-exchange-rates
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. William R. Cline, 1995. "International Economic Policy in the 1990s," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203221x, December.
    2. William R. Cline & John Williamson, 2008. "New Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB08-7, Peterson Institute for International Economics.
    3. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luo, Ji & Williams, Gary W., 2015. "The Impacts of Chinese Exchange Rate Policy on World Soybean and Products Markets," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205075, Agricultural and Applied Economics Association.
    2. William R. Cline & John Williamson, 2012. "Updated Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB12-23, Peterson Institute for International Economics.
    3. William R. Cline, 2013. "Estimates of Fundamental Equilibrium Exchange Rates, May 2013," Policy Briefs PB13-15, Peterson Institute for International Economics.
    4. Morris GOLDSTEIN & Daniel XIE, 2009. "US Credit Crisis and Spillovers to Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 4(2), pages 204-222, December.
    5. William R. Cline, 2013. "Estimates of Fundamental Equilibrium Exchange Rates, November 2013," Policy Briefs PB13-29, Peterson Institute for International Economics.
    6. William R. Cline, 2015. "Estimates of Fundamental Equilibrium Exchange Rates, May 2015," Policy Briefs PB15-8, Peterson Institute for International Economics.
    7. Bineau, Yannick, 2010. "Renminbi's misalignment: A meta-analysis," Economic Systems, Elsevier, vol. 34(3), pages 259-269, September.
    8. William R. Cline & John Williamson, 2012. "Estimates of Fundamental Equilibrium Exchange Rates, May 2012," Policy Briefs PB12-14, Peterson Institute for International Economics.
    9. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," International Economics, CEPII research center, issue 121, pages 25-58.
    10. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2009. "Where did all the borrowing go? A forensic analysis of the U.S. external position," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 177-199, June.
    11. Andrew Hughes Hallett & Juan Martinez Oliva, 2012. "Reducing Global Imbalances: Can Fixed Exchange Rates and Current Account Limits Help?," Open Economies Review, Springer, vol. 23(1), pages 163-192, February.
    12. Ronald McKinnon & Gunther Schnabl, 2006. "China's Exchange Rate and International Adjustment in Wages, Prices and Interest Rates: Japan Déjà Vu?," CESifo Economic Studies, CESifo Group, vol. 52(2), pages 276-303, June.
    13. Andrew Sheng & Kian Teng Kwek & Cho Wai Cho, 2012. "Patterns Of Exchange Rates And Current Accounts: The East Asian Waltz," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 57(02), pages 1-34.
    14. Couharde, Cécile & Delatte, Anne-Laure & Grekou, Carl & Mignon, Valérie & Morvillier, Florian, 2018. "EQCHANGE: A world database on actual and equilibrium effective exchange rates," International Economics, Elsevier, vol. 156(C), pages 206-230.
    15. Kenc, Turalay & Dibooglu, Sel, 2010. "The 2007-2009 financial crisis, global imbalances and capital flows: Implications for reform," Economic Systems, Elsevier, vol. 34(1), pages 3-21, March.
    16. Stefan Behrendt, 2014. "The Fiscal Compact and Current Account Patterns in Europe," Global Financial Markets Working Paper Series 2014-52, Friedrich-Schiller-University Jena.
    17. Jochem Axel, 2010. "International Financial Competitiveness and Incentives to Foreign Direct Investment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(1), pages 42-58, February.
    18. Ronald Ian McKinnon, 2007. "The US current account deficits and the dollar standard’s sustainability: A monetary approach," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(04), pages 12-23, January.
    19. Christopher M. Meissner & Alan M. Taylor, 2006. "Losing our marbles in the new century?: the great rebalancing in historical perspective," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 51.
    20. Staiger, Robert W. & Sykes, Alan O., 2010. "‘Currency manipulation’ and world trade," World Trade Review, Cambridge University Press, vol. 9(4), pages 583-627, October.

    More about this item

    Keywords

    Exchange Rates; Current Account Adjustment; Dollar;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp08-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peterson Institute webmaster (email available below). General contact details of provider: https://edirc.repec.org/data/iieeeus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.