2016年-PIIE彼得森国际经济研究所_Estimates_of_Fundamental_Equilibrium_Exchange_Rates_May_2016_18页_418kb

Summary of POLICY BRIEF: 16-6 Estimates of Fundamental Equilibrium Exchange Rates, May 2016

Core Content

This policy brief estimates the fundamental equilibrium exchange rates (FEERs) for major economies and analyzes the implications of current account balances and exchange rate trends. The author, William R. Cline, discusses the overvaluation of the US dollar, the realignment of other currencies, and the potential future movements in exchange rates based on economic fundamentals.

Main Points

US Dollar Overvaluation

• The US dollar is overvalued by approximately 7 percent, consistent with previous estimates.
• Despite the Federal Reserve's rate hikes in late 2015, the dollar has weakened against the euro and yen since then.
• The overvaluation is attributed to the divergence in monetary policy, with the US tightening while the euro area and Japan continued easing.
• The US current account deficit is projected to widen from 2.7 percent of GDP in 2015 to 4.1 percent in 2021.
• A 6.3 percent depreciation of the dollar would be needed to bring the current account deficit within the FEER target of ±3 percent of GDP.

Other Currencies

• The Japanese yen is slightly undervalued (by 3 percent) despite recent appreciation.
• The euro and Chinese renminbi are not misaligned.
• Several countries, including South Africa, Turkey, and Australia, have current account deficits that exceed the FEER target.
• Singapore, Taiwan, and Korea have current account surpluses significantly above the FEER target.

Current Account Projections

• The International Monetary Fund (IMF) provides the basis for FEER estimates.
• The model accounts for the lag between exchange rate changes and trade outcomes (typically two years).
• Adjusted current account balances are derived by incorporating half the difference from the IMF's projections.

China's Current Account

• China's current account surplus is projected to fall from 10 percent of GDP in 2007 to 0.5 percent in 2021.
• The real effective exchange rate (REER) of the renminbi has increased, contributing to the decline in the surplus.
• The surplus decline is partly due to the "Balassa-Samuelson" effect and a shift in trade balance.
• The IMF notes that China's surplus may be overstated due to factors like merchanting profits and multinational corporate earnings.

Interest Rate Divergence

• The divergence in monetary policy between the US and the euro area/Japan has influenced exchange rates.
• The US rate gap widened significantly from 2013 to 2015, but markets may have already overreacted to this trend.
• The dollar's recent weakening may reflect a correction of earlier overshooting.

FEERs and Exchange Rate Adjustments

• The SMIM model is used to estimate the necessary changes in REER to align with FEER targets.
• The US dollar would need a 7.3 percent depreciation to reach FEERs.
• The yen would appreciate by 2.9 percent, while the euro and renminbi would depreciate by about 0.8 percent each.
• Countries like Singapore and Taiwan would need significant appreciations (29% and 25%, respectively) to align with FEERs.

Key Information

FEER Estimates

• The US dollar is overvalued by about 7 percent.
• The yen is slightly undervalued by 3 percent.
• The euro and renminbi are not misaligned.
• The FEER target for current account balance is ±3 percent of GDP.

Current Account Trends

• The US current account deficit is expected to increase to 4.1 percent of GDP by 2021.
• China's surplus is projected to fall significantly, from 10 percent in 2007 to 0.5 percent in 2021.
• Korea's surplus is expected to decrease from 8.2 percent in 2015 to 5.6 percent in 2021.
• Brazil's current account balance is expected to shift from a deficit to a small surplus, but political uncertainty may affect this.

Exchange Rate Adjustments

• The FEER-consistent bilateral exchange rates would see a significant depreciation of the dollar and appreciation of the yen.
• Countries like Australia, Argentina, and Chile would require smaller depreciations, while Singapore and Taiwan would need large appreciations.
• The simulations suggest that a general realignment would result in substantial exchange rate movements, but these may not occur if only one currency adjusts.

Implications

• The current account and exchange rate trends reflect broader economic imbalances and policy divergences.
• The dollar's overvaluation may lead to renewed pressure for depreciation, especially as the US current account deficit widens.
• The IMF and other models suggest that the realignment process is ongoing, with some countries needing to adjust significantly to reach FEERs.

Conclusion

The US dollar remains overvalued, while the yen is slightly undervalued. The FEER estimates highlight the need for exchange rate adjustments in several countries to align with medium-term economic fundamentals. The analysis underscores the role of monetary policy divergence, oil prices, and trade dynamics in shaping these trends. Despite the recent dollar weakening, the long-term outlook suggests that the dollar may eventually strengthen again as the Fed continues its rate normalization.