Occasional Papers

Methodology for Current Account and Exchange Rate Assessments

Author/Editor:

G. Russell Kincaid ; Martin Fetherston ; Peter Isard ; Hamid Faruqee

Publication Date:

December 28, 2001

Electronic Access:

Link to Abstract

Summary:

This chapter reports on Coordinating Group on Exchange Rate Issues’ (CGER) works and provides perspectives on alternative frameworks for assessing exchange rates and the rationale for CGER's general approach. The primary motivation for the work of the CGER 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. The assessments of exchange rates among industrial country currencies rely primarily on an application of a macroeconomic balance framework. This framework focuses on the extent to which the current account positions associated with prevailing exchange rates are consistent with medium-run fundamentals. Substantial discrepancies between exchange rates and their medium-run equilibrium levels, when they emerge, raise two different, however, related issues for the IMF to address in its exercise of bilateral and multilateral Surveillance.

Series:

Occasional Paper No. 2001/006

Subject:

Balance of payments Current account Emerging and frontier financial markets Exchange rate adjustments Exchange rates Financial markets Foreign exchange Real exchange rates