2016年-PIIE彼得森国际经济研究所_Exchange_Rates_for_the_Dollar_Yen_and_Euro_4页_1mb

Summary of International Economics Policy Briefs: Exchange Rates for the Dollar, Yen, and Euro

Core Content

This policy brief by Simon Wren-Lewis, from the University of Exeter, discusses the concept of Fundamental Equilibrium Exchange Rates (FEERs) as a method to assess the medium-term alignment of exchange rates among G7 countries. It critiques the traditional Purchasing Power Parity (PPP) as an unreliable measure due to its assumption that consumers will arbitrage price differences across countries, which is often not feasible in practice.

Main Views

• FEERs are defined as the real exchange rates that would emerge in the medium term once the economy reaches internal balance, i.e., when output is at its trend level and monetary policy no longer influences real interest rates.
• PPP is criticized for being misleading because it assumes free arbitrage between goods, which is not always possible due to transaction costs and imperfect competition in trade markets.
• The FEER approach considers macroeconomic factors such as output trends and current account balances, rather than relying solely on price levels.
• FEERs are not directly tied to the target zone policy but are of broader interest as they represent a medium-term forecast of exchange rate movements.

Key Information

FEER Calculations for G7 Countries (2000)

Notable Findings

• The yen/dollar FEER is estimated to be between 80-95 yen/dollar, implying a 40% undervaluation of the yen relative to current rates.
• The dollar is overvalued against the deutsche mark, but less so than against the yen.
• The sterling is overvalued against the deutsche mark by about 30%, which explains why the UK is not joining the European Monetary Union at that time.
• The euro/dollar FEER is in the range 1.4-1.15, compared to a current parity of 1.1, suggesting an overvaluation of around 15%.

Uncertainties

• FEER estimates are presented as ranges to reflect uncertainties in assumptions.
• The main sources of uncertainty are:
  • Output trend assumptions: A 1% underestimation of trend output leads to a 1-2% depreciation in FEER.
  • Current account assumptions: These have a larger impact, with the US needing a 5% depreciation if it could only sustain a 1% current account deficit.
  • Trade model reliability: The model used to estimate trade volumes is not always accurate, especially for countries like Japan, where structural changes in trade patterns have occurred due to economic restructuring.

Implications and Reactions

• FEERs are not expected to match current exchange rates immediately, as they represent long-term trends.
• The Asian crisis is influencing current yen rates, but the FEER estimates are "crisis-free", assuming no long-term impact.
• In 1995, actual exchange rates were close to FEER estimates, suggesting that FEERs are a reasonable indicator over time.
• The brief emphasizes that current account balances lag behind exchange rate misalignments, and that overvaluation of the dollar and undervaluation of the yen are consistent with economic conditions.
• It concludes that correcting cyclical imbalances across the G7 is crucial to reducing the extent of exchange rate misalignment.

Conclusion

The FEER framework offers a more nuanced and realistic approach to assessing medium-term exchange rate trends compared to PPP. It highlights the importance of macroeconomic factors in determining exchange rates and cautions against drawing policy conclusions based on current exchange rates alone. The study provides range-based estimates for G7 countries, emphasizing the uncertainties and sensitivity of the model to assumptions.