Much of the conceptual framework discussed in this section represents refinements and extensions of an approach that has been prominent for several decades. As a complement to the methodology of basing exchange rate assessments on purchasing power parity (PPP) calculations or international competitiveness indicators, the macroeconomic balance approach, which features quantitative assessments of the exchange rates consistent with “appropriate” current account positions, has been used by the IMF staff since at least as far back as the summer of 1967, when views were being developed about the appropriate size of the prospective devaluation of sterling.1 Although it was not until 1973 that the staff first published in detail its Multilateral Exchange Rate Model (MERM),2 which provided consistent estimates of the trade effects of simultaneous changes in the exchange rates for the currencies of all industrial countries, an earlier version of MERM had become available in 1970 and provided a framework for analysis by the staff during the period preceding the Smithsonian conference in December 1971.3

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