2017年-PIIE彼得森国际经济研究所_Estimates_of_Fundamental_Equilibrium_Exchange_Rates_May_2017_24页_504kb

Summary of Policy Brief: 17-19 Estimates of Fundamental Equilibrium Exchange Rates, May 2017

Core Content

This policy brief provides updated estimates of the Fundamental Equilibrium Exchange Rates (FEERs) for major economies, emphasizing the undervaluation of the US dollar and the need for depreciation to align with its FEER. It also analyzes the political and monetary factors influencing exchange rates in the early Trump administration, particularly in relation to trade and fiscal policies.

Main Views

• The US dollar is currently overvalued by about 8% relative to its FEER, which would require depreciation to restore balance.
• Trade and currency conflicts that were anticipated during the Trump campaign have largely been avoided in the early months of his administration.
• Fiscal stimulus and monetary normalization are expected to increase upward pressure on the dollar, especially compared to the euro area and Japan.
• A border tax adjustment (BTA) in corporate tax reform could further appreciate the dollar, but it is unlikely to be adopted due to opposition from import-dependent sectors.
• Current account deficits are projected to widen for the US and other economies, necessitating exchange rate adjustments to align with FEERs.

Key Information

Political and Monetary Environment

• The Trump administration avoided labeling China a currency manipulator, despite campaign promises, due to diplomatic considerations and the lack of clear evidence of manipulation.
• Trade tensions with China and Mexico have been temporarily eased, but persistent trade deficits and dollar strength remain concerns.
• The US and Mexico are moving toward renegotiating NAFTA, with a measured tone compared to the campaign's more confrontational approach.
• The Mexican peso rebounded after the initial drop following Trump’s election, indicating reduced trade conflict.

US Tax Reform and Fiscal Impact

• The Trump tax reform includes corporate tax rate cuts from 35% to 15%, a shift to territorial taxation, and elimination of deductions for state and local taxes.
• The net revenue loss is estimated at $5.5 trillion over 10 years, which could lead to larger fiscal deficits and higher interest rates.
• The border tax adjustment (BTA) is not included in the current tax reform plan, but could resurface in legislative negotiations.
• Economists suggest that a BTA could prompt dollar appreciation of 20–25% to offset import price increases.

Monetary Policy and Exchange Rate Dynamics

• The US is ahead in monetary normalization compared to the euro area and Japan, which increases upward pressure on the dollar.
• Interest rate differentials (long-term government bond rates) are a key factor in explaining exchange rate movements.
• Market forecasts suggest the US 10-year interest rate could rise to 3.2% in 2018, compared to 0.7% in Germany and 0.1% in Japan, leading to dollar appreciation.
• Statistical models project dollar appreciation of 3–5% against the euro and 4–15% against the yen by 2018, based on interest rate differentials.

Current Account Projections and FEER Adjustments

• The IMF's 2017 projections show large current account surpluses for Singapore, Taiwan, and Hong Kong, with surpluses up to 17% of GDP.
• The US current account deficit is projected to increase from -2.7% to -4.0% of GDP by 2022, suggesting further dollar depreciation is needed.
• Adjustments to REERs are required to bring current accounts into alignment with FEERs:
  • US dollar: Depreciate by 8%
  • Japanese yen: Appreciate by 6–7%
  • Korean won: Appreciate by 6–7%
  • Singapore and Taiwan: Appreciate by 28–29%
  • Switzerland: Appreciate by 7%
  • Argentina: Depreciate by 11%
  • Other currencies: Appreciation or depreciation based on current account adjustments.

Conclusion

• The US dollar is overvalued, and its depreciation is necessary to align with FEERs.
• Fiscal expansion and monetary normalization are key drivers of dollar strength.
• The border tax adjustment could accelerate dollar appreciation, but is unlikely to be adopted.
• Exchange rate adjustments are needed for most major economies to reach fundamental equilibrium.
• The IMF projections suggest persistent current account imbalances and further dollar appreciation in the medium term.