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Evaluating Historical CGER Assessments:How Well Have They Predicted Subsequent Exchange Rate Movements?

Author/Editor: Abiad, Abdul | Kannan, Prakash | Lee, Jungjin
Authorized for Distribution: February 1, 2009
Electronic Access: Free Full Text (PDF file size is 525KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: The IMF's Consultative Group on Exchange Rate issues (CGER) has been conducting exchange rate assessments as part of the surveillance process since 1997. This paper evaluates CGER assessments from 1997 to 2006, by comparing these to subsequent movements in real effective exchange rates (REER). We find that CGER's estimated misalignments have predictive power over future REER movements, especially over longer horizons and after changes in fundamentals are accounted for. But while CGER misalignments frequently predict the direction of currency movements correctly, misalignments have tended to be persistent, resulting in systematic errors-overprediction for undervalued currencies and underprediction for overvalued currencies.
 
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Series: Working Paper No. 09/32
Subject(s): Exchange rate assessments | Developed countries | Emerging markets | Exchange rate policy surveillance | Real effective exchange rates | Current account balances | Economic models | Cross country analysis
Author's keyword(s): Exchange rates | forecasting | misalignment
 
English  
    Published:   February 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009032   Pages:   27
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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