New Estimates of Fundamental Equilibrium Exchange Rates (FEERs)
William R. Cline, Peterson Institute
John Williamson, Peterson Institute
Peterson Institute for International Economics, Washington, DC
July 23, 2008
The Peterson Institute for International Economics launched a new series of estimates of fundamental equilibrium exchange rates (FEERs) at a meeting held July 23, 2008.
In a new policy brief, the senior fellows William R. Cline and John Williamson estimate the misalignment of currencies in 30 economies and find the set of exchange rates against the dollar needed to correct these misalignments simultaneously. They concluded that the dollar is still significantly overvalued against a number of Asian currencies, most prominently the Chinese renminbi and the Japanese yen. The renminbi needs to rise by about 30 percent against the dollar and the yen should strengthen by about 20 percent. The Institute will release estimates of this type periodically.
Williamson pioneered the concept of FEERs, which has become widely used in both official and private circles, over the past 25 years. Cline has built and extensively deployed models of international current account imbalances since the late 1980s. They have now combined these methodologies to produce a consistent set of global current account norms and the exchange rates that could achieve and maintain them.