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

Author/Editor:

Jungjin Lee ; Abdul d Abiad ; Prakash Kannan

Publication Date:

February 1, 2009

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 09/32

Subject:

English

Publication Date:

February 1, 2009

ISBN/ISSN:

9781451871791/1018-5941

Stock No:

WPIEA2009032

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

27

Please address any questions about this title to publications@imf.org