Abstract

The primary motivation for the work of the Coordinating Group on Exchange Rate Issues is to identify cases where exchange rates appear to be substantially out of line with medium-run macroeconomic fundamentals. It is recognized that such situations can have different interpretations, depending on the cyclical positions of economies and other circumstances. Whether policymakers should take actions or make pronouncements when the methodology identifies possible misalignments is left as an open question, to be addressed on a case-by-case basis and in the context of considering the extent to which monetary, fiscal, and other policies are appropriate from a broader perspective.

Cited By

  • Alberola, Enrique, Susana G. Cervero, J. Humberto Lopez, and Angel Ubide, 1999, “Global Equilibrium Exchange Rates—Euro, Dollar, ‘Ins,’ ‘Outs,’ and Other Major Currencies in a Panel Cointegration Framework,IMF Working Paper No. 99/175, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Artus, Jacques, 1978, “Methods of Assessing the Long- Run Equilibrium Value of an Exchange Rate,Journal of International Economics, Vol. 8, pp. 27799.

    • Search Google Scholar
    • Export Citation
  • Artus, Jacques, and Malcolm Knight, 1984, Issues in the Assessment of the Exchange Rates of the Industrial Countries: A Study by the Research Department, IMF Occasional Paper No. 29 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Balassa, Bela, 1964, “The Purchasing-Power Parity Doctrine: A Reappraisal,Journal of Political Economy, Vol. 72 (December), pp. 58496.

    • Search Google Scholar
    • Export Citation
  • Barro, Robert J., 1989, “The Ricardian Approach to Budget Deficits,Journal of Economic Perspectives, Vol. 3 (Spring), pp. 3754.

    • Search Google Scholar
    • Export Citation
  • Bayoumi, Tamim, and Hamid Faruqee, 1998, “A Calibrated Model of the Underlying Current Account,” in Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167, ed. by Peter Isard and Hamid Faruqee (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Berg, Andrew, Eduardo Borensztein, Gian Maria Milesi- Ferretti, and Catherine Pattillo, 1999, Anticipating Balance of Payments Crises: The Role of Early Warning Systems, IMF Occasional Paper No. 186 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Bernheim, B. Douglas, 1989, “Neoclassical Perspective on Budget Deficits,Journal of Economic Perspectives, Vol. 3 (Spring), pp. 5572.

    • Search Google Scholar
    • Export Citation
  • Breuer, Janice Boucher, 1994, “An Assessment of the Evidence on Purchasing Power Parity,” in Estimating Equilibrium Exchange Rates, ed. by John Williamson (Washington: Institute for International Economics).

    • Search Google Scholar
    • Export Citation
  • Cassel, Gustav, 1918, “Abnormal Deviations in International Exchanges,Economic Journal, Vol. 28, pp. 41315.

  • Cassel, Gustav, 1922, Money and Foreign Exchange After 1914 (New York: Constable & Co.).

  • Chinn, Menzie, and Eswar S. Prasad, 2000, “Medium- Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration,IMF Working Paper No. 00/46 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Clark, Peter B., Leonardo Bartolini, Tamim Bayoumi, and Steven Symansky, 1994, Exchange Rates and Economic Fundamentals: A Framework for Analysis, IMF Occasional Paper No. 115 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Clark, Peter B., and Ronald MacDonald, 2000, “Filtering the BEER: A Permanent and Transitory Decomposition,IMF Working Paper No. 00/144 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Debelle, Guy, and Hamid Faruqee, 1996, “What Determines the Current Account? A Cross-Sectional and Panel Approach,IMF Working Paper No. 96/58 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • De Broeck, Mark, and Torsten Slok, 2001, “Interpreting Real Exchange Rate Movements in Transition Economies,IMF Working Paper No. 01/56 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Dooley, Michael P. and Peter Isard, 1987, “Country Preferences, Currency Values and Policy Issues,Journal of Policy Modeling, Vol. 9 (Spring), pp. 6581.

    • Search Google Scholar
    • Export Citation
  • Edwards, Sebastian, 1989, Real Exchange Rates, Devaluation and Adjustment: Exchange Rate Policy in Developing Countries (Cambridge, Massachusetts: MIT Press).

    • Search Google Scholar
    • Export Citation
  • Edwards, Sebastian, 1994, “Real and Monetary Determinants of Real Exchange Rate Behavior: Theory and Evidence from Developing Countries,” in Estimating Equilibrium Exchange Rates, ed. by John Williamson (Washington: Institute for International Economics).

    • Search Google Scholar
    • Export Citation
  • Elbadawi, Ibrahim, 1994, “Estimating Long-Run Equilibrium Real Exchange Rates,” in Estimating Equilibrium Exchange Rates, ed. by John Williamson (Washington: Institute for International Economics).

    • Search Google Scholar
    • Export Citation
  • Engel, Robert F., and C.W. J. Granger, 1987, “Co-integration and Error Correction: Representation, Estimation, and Testing,Econometrica, Vol. 55 (March), pp. 25176.

    • Search Google Scholar
    • Export Citation
  • Faruqee, Hamid, 1995, “Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective,Staff Papers, International Monetary Fund, Vol. 42 (March), No. 1, pp. 80107.

    • Search Google Scholar
    • Export Citation
  • Faruqee, Hamid, 1998, “Methodology for Calculating Equilibrium Exchange Rates and Question of Global Consistency,” in Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167, ed. by Peter Isard and Hamid Faruqee (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Faruqee, Hamid, and Guy Debelle, 1998, “Saving-Investment Balances in Industrial Countries: An Empirical Investigation,” in Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167, ed. by Peter Isard and Hamid Faruqee (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Faruqee, Hamid, Peter Isard, and Paul R. Masson, 1999, “A Macroeconomic Balance Framework for Estimating Equilibrium Exchange Rates,” in Equilibrium Exchange Rates, ed. by Ronald MacDonald Jerome L. Stein (Boston: Kluwer Academic Publishers).

    • Search Google Scholar
    • Export Citation
  • Flood, Robert P., and Mark P. Taylor, 1996, “Exchange Rate Economics: What’s Wrong with the Conventional Macro Approach?” in The Micro structure of Foreign Exchange Markets, ed. by Jeffrey A. Frankel, Giampaolo Galli, and Alberto Giovannini (Chicago: University of Chicago Press).

    • Search Google Scholar
    • Export Citation
  • Flood, Robert P., and Andrew K. Rose, 1999, “Understanding Exchange Rate Volatility Without the Contrivance of Macroeconomics,Economic Journal, Vol. 109, No. 459 (November), pp. F66072.

    • Search Google Scholar
    • Export Citation
  • Frankel, Jeffrey A., and Andrew K. Rose, 1995, “Empirical Research on Nominal Exchange Rates,” in Handbook of International Economics, Vol. 3, ed. by Gene M. Grossman Kenneth Rogoff (Amsterdam: North-Holland).

    • Search Google Scholar
    • Export Citation
  • Froot, Kenneth A., and Kenneth Rogoff, 1995, “Perspectives on PPP and Long-Run Real Exchange Rates,” in Handbook of International Economics, Vol. 3, ed. by Gene M. Grossman Kenneth Rogoff (Amsterdam: North-Holland).

    • Search Google Scholar
    • Export Citation
  • Gilbert, Milton, and Irving B. Kravis, 1954, An International Comparison of National Products and the Purchasing Power of Currencies: A Study of the United States, the United Kingdom, France, Germany, and Italy (Paris: Organization for European Economic Cooperation).

    • Search Google Scholar
    • Export Citation
  • Goldman Sachs, 1996, The Foreign Exchange Market (July).

  • Goldman Sachs, 1997, The Foreign Exchange Market (September).

  • Goldstein, Morris, and Mohsin S. Khan, 1985, “Income and Price Effects in Foreign Trade,” in Handbook of International Economics, Vol. 2, ed. by Ronald W. Jones and Peter B. Kenen (Amsterdam: North-Holland).

    • Search Google Scholar
    • Export Citation
  • Granger, C. W. J., 1981, “Some Properties of Time Series Data and Their Use in Econometric Model Specification,Journal of Econometrics, Vol. 16 (No. 1), pp. 12130.

    • Search Google Scholar
    • Export Citation
  • Group of Ten Deputies, 1993, International Capital Movements and Foreign Exchange Markets: A Report to the Ministers and Governors (Rome: Bank of Italy).

    • Search Google Scholar
    • Export Citation
  • Harrod, R. E, 1939, International Economics (London: Nisbet and Co.).

  • International Monetary Fund, 2000, World Economic Outlook, October 2000 (Washington).

  • Isard, Peter, 1995, Exchange Rate Economics, Cambridge Surveys of Economic Literature (Cambridge, England: Cambridge University Press).

  • Isard, Peter, and Steven Symansky, 1996, “Long-Run Movements in Real Exchange Rates,” in Exchange Rate Movements and Their Impact on Trade and Investment in the APEC Region, IMF Occasional Paper No. 145, ed. by Takatoshi Ito, Peter Isard, Steven Symansky, and Tamim Bayoumi (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Isard, Peter, and Hamid Faruqee, ed., 1998, Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Kahn, Robert, and Roger Nord, 1998, “Applications in IMF Surveillance Over Major Industrial Countries,” in Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167, ed. by Peter Isard Hamid Faruqee (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Knight, Malcolm D., and Paul R. Masson, 1988, “Fiscal Policies, Net Saving, and Real Exchange Rates: The United States, the Federal Republic of Germany, and Japan,” in International Aspects of Fiscal Policies, ed. by Jacob Frenkel (Chicago: University of Chicago Press).

    • Search Google Scholar
    • Export Citation
  • Krajnyák, Kornélia, 2000, “Switzerland’s External Position in International Perspective,” in IMF Staff Country Report No. 00/43 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Kravis, Irving B., Alan Heston, Robert Summers, 1982, World Product and Income: International Comparisons of Real Gross Product (Baltimore: Johns Hopkins University Press).

    • Search Google Scholar
    • Export Citation
  • Lane, Philip, and Gian Maria Milesi-Ferretti, 2001a, “Long-Term Capital Movements,IMF Working Paper No. 01/107 (Washington: International Monetary Fund); forthcoming in NBER Macroeconomics Annual 2001.

    • Search Google Scholar
    • Export Citation
  • Lane, Philip, and Gian Maria Milesi-Ferretti, 2001b, “External Wealth, the Trade Balance, and the Real Exchange Rate” (unpublished).

    • Search Google Scholar
    • Export Citation
  • Lane, Philip, and Gian Maria Milesi-Ferretti, 2001c, “The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries,Journal of International Economics, Vol. 55 (December), pp. 26394.

    • Search Google Scholar
    • Export Citation
  • Laxton, Douglas, Peter Isard, Hamid Faruqee, Eswar Prasad, and Bart Turtelboom, 1998, MULTIMOD Mark III: The Core Dynamic and Steady-State Models, IMF Occasional Paper No. 164 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • MacDonald, Ronald, 1999, “Exchange Rate Behaviour: Are Fundamentals Important?Economic Journal, Vol. 109 (November), pp. F67391.

    • Search Google Scholar
    • Export Citation
  • Masson, Paul, 1998, “A Globally Consistent Conceptual Framework,” in Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167, ed. by Peter Isard Hamid Faruqee (Washington: International Monetary Fund)

    • Search Google Scholar
    • Export Citation
  • Meade, James E, 1951, The Theory of International Economic Policy, Volume One: The Balance of Payments (London: Oxford University Press).

    • Search Google Scholar
    • Export Citation
  • Meese, Richard A. and Kenneth Rogoff, 1983a, “Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?Journal of International Economics, Vol. 14 (February), pp. 324.

    • Search Google Scholar
    • Export Citation
  • Meese, Richard A. and Kenneth Rogoff, 1983b, “The Out-of-Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?” in Exchange Rates and International Macroeconomics, ed. by Jacob A. Frenkel (Chicago: University of Chicago Press).

    • Search Google Scholar
    • Export Citation
  • Meese, Richard A. and Kenneth Rogoff, 1988, “Was It Real? The Exchange Rate-Interest Differential Relation Over the Modern Floating-Rate Period,Journal of Finance, Vol. 43 (September), pp. 93348.

    • Search Google Scholar
    • Export Citation
  • Meredith, Guy, 1998, “A Dynamic Extension of the Macroeconomic Balance Approach,” in Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, IMF Occasional Paper No. 167, ed. by Peter Isard and Hamid Faruqee (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Metzler, Lloyd A., 1951, “Wealth, Saving and the Rate of Interest,Journal of Political Economy, Vol. 59, pp. 93046.

  • Moggridge, Daniel E., 1972, British Monetary Policy, 1924—1931: The Norman Conquest of $4.86 (Cambridge, England: Cambridge University Press).

    • Search Google Scholar
    • Export Citation
  • Mussa, Michael, 1984, “The Theory of Exchange Rate Determination,” in Exchange Rate Theory and Practice, ed. by John F. O. Bilson Marston Richard C. (Chicago: University of Chicago Press).

    • Search Google Scholar
    • Export Citation
  • Nurkse, Ragnar, 1945, “Conditions of International Monetary Equilibrium,” Essays in International Finance, No. 4 (Princeton, New Jersey: Princeton University Press).

    • Search Google Scholar
    • Export Citation
  • Obstfeld, Maurice, and Kenneth Rogoff, 2000, “The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?” in NBER Macroeconomics Annual 2000, ed. by B. Bernanke K. Rogoff (Cambridge, Massachusetts: MIT Press).

    • Search Google Scholar
    • Export Citation
  • Polak, Jacques J., 1995, “Fifty Years of Exchange Rate Research and Policy at the International Monetary Fund,” Staff Papers, International Monetary Fund, Vol. 42 (December), pp. 73461.

    • Search Google Scholar
    • Export Citation
  • Ricardo, David, 1821, “On the Principles of Political Economy and Taxation,” reprinted in The Works and Correspondence of David Ricardo, Vol. I, ed. by Piero Sraffa (Cambridge, England: Cambridge University Press, 1951).

    • Search Google Scholar
    • Export Citation
  • Rogoff, Kenneth, 1996, “The Purchasing Power Parity Puzzle,Journal of Economic Literature, Vol. 34 (June), pp. 64768.

  • Rogoff, Kenneth, 1999, “Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or Undead?Economic Journal, Vol. 109 (November), pp. F65559.

    • Search Google Scholar
    • Export Citation
  • Samuelson, Paul A., 1964, “Theoretical Notes on Trade Problems,Review of Economics and Statistics, Vol. 46 (May), pp. 14554.

  • Samuelson, Paul A., 1994, “Facets of Balassa-Samuelson Thirty Years Later,Review of International Economics, Vol. 2 (October), pp. 20126.

    • Search Google Scholar
    • Export Citation
  • Summers, Robert, and Alan Heston, 1991, “The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988,Quarterly Journal of Economics, Vol. 106 (May), pp. 32768.

    • Search Google Scholar
    • Export Citation
  • Swan, T. W., 1963, “Longer-Run Problems of the Balance of Payments,” in The Australian Economy: A Volume of Readings, W. Arndt W. M. Corden (Melbourne: F. W. Cheshire).

    • Search Google Scholar
    • Export Citation
  • Williamson, John, 1985, The Exchange Rate System (Washington: Institute for International Economics).

  • Williamson, John, ed., 1994, Estimating Equilibrium Exchange Rates (Washington: Institute for International Economics).

  • Williamson, John, and Molly Mahar, 1998, “Current Account Targets,” Appendix A in Real Exchange Rates for the Year 2000, ed. by Simon Wren-Lewis and Rebecca L. Driver (Washington: Institute for International Economics).

    • Search Google Scholar
    • Export Citation