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Policy Brief 14-16

Estimates of Fundamental Equilibrium Exchange Rates, May 2014

by William R. Cline, Peterson Institute for International Economics

May 2014


The latest estimates of fundamental equilibrium exchange rates (FEERs) in this semiannual series indicate that the currencies of the United States, the euro area, China, and Japan are approximately at their FEER levels and need no adjustment to reduce excessive external imbalances. The medium-term current account, however, is at the lower bound of the desired range for the United States and at the upper bound for the euro area and China. For Japan, even though a large improvement in the current account remains in the pipeline from the lagged influence of the past sharp depreciation of the yen, higher fuel import costs and export weakness mean the surplus is unlikely to rise above 3 percent of GDP; the new FEER estimate for the yen is therefore significantly lower than before. A familiar list of currencies remain persistently overvalued (New Zealand, Turkey, South Africa, and Brazil) and undervalued (Singapore, Taiwan, Sweden, and Switzerland).

Data disclosure: Data are available for download for the SMIM model underlying this analysis [xlsx], the calculation of real effective exchange rates [xlsx], and the figures and tables in this Policy Brief [xlsx]. The data underlying the interactive FEERs map are available here [xlsx].

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