Front Matter

Front Matter

Author(s):
Jaewoo Lee, Jonathan Ostry, Alessandro Prati, Luca Ricci, and Gian Milesi-Ferretti
Published Date:
April 2008
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    © 2008 International Monetary Fund

    Production: IMF Multimedia Services Division

    Typesetting: Choon Lee

    Figures: Julio Prego

    Cataloging-in-Publication Data

    Exchange rate methodologies : CGER assessments / by Jaewoo Lee … [et al.] — Washington, DC : International Monetary Fund, 2008.

    p. cm. — (Occasional paper ; 261)

    • Includes bibliographical references.

    • ISBN 978-1-58906-638-0

    1. Foreign exchange rates. 2. Balance of payments. 3. Equilibrium (Economics) 4. Alien property. I. Lee, Jaewoo. II. International Monetary Fund. III. Occasional paper (International Monetary Fund) ; 261 HG3821 .E934 2008

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    Preface

    An emphasis on exchange rate surveillance—a topic that has always been at the core of the IMF’s mandate—received renewed impetus in the IMF’s Medium-Term Strategy (MTS),1 that called inter alia for stronger emphasis on multilateral surveillance, macro-financial linkages, and the implications of globalization, reflecting the stronger economic ties among member countries brought about by the rapid increase in international trade and financial integration. The exchange rate analysis conducted by the IMF’s Consultative Group on Exchange Rate Issues (CGER)—which was formed in the mid-1990s with a mandate to provide exchange rate assessments for a number of advanced economies from a multilateral perspective—has accordingly been expanded to cover both key advanced economies and major emerging market economies. This paper summarizes the methodologies that underpin this expanded analysis.

    This paper was prepared under the direction of Jonathan D. Ostry (Deputy Director, Research Department). Its main authors are Jaewoo Lee, Gian Maria Milesi-Ferretti, and Luca Antonio Ricci, with substantial contributions from Jonathan Ostry and Alessandro Prati.

    Background research on expanding the CGER methodology to include emerging market countries was led by Gian Maria Milesi-Ferretti (Chief of the Exchange Rate Issues Division in the Research Department). Tamim Bayoumi played an instrumental role in the early phase of the research, and Sarma Jayanthi has been the critical lynchpin in data management and quantitative analysis.

    The authors would also like to acknowledge the significant contributions made by José Antonio Rodriguez-Lopez to the implementation of the external sustainability methodology, and by Marco Arena, Giang Do, and Jungjin Lee who provided excellent research assistance. Carlo Cottarelli and Ketil Hviding of the Policy Development and Review Department, as well as numerous other colleagues on the IMF staff, provided comments and suggestions. The authors are grateful to Katia Berruetta and Laura Leon for administrative support, and to Marina Primorac of the External Relations Department for editing and coordinating production of the publication.

    The paper has also benefited from the discussion at an IMF Executive Board seminar in September 2006. The opinions expressed in the paper are those of the authors and do not necessarily reflect the views of the IMF or its Executive Directors.

    List of Abbreviations

    CA

    current account balance

    CGER

    Consultative Group on Exchange Rate Issues

    ERER

    reduced-form equilibrium real exchange rate

    ES

    external sustainability

    DOLS

    dynamic ordinary least squares

    IFS

    International Financial Statistics

    MB

    macroeconomic balance

    MTS

    Medium-Term Strategy

    MUV

    manufacturing unit value index

    NFA

    net foreign assets (net international investment position)

    UN

    United Nations

    WDI

    World Development Indicators

    WEO

    World Economic Outlook

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