CEPII, Recherche et Expertise sur l'economie mondiale
EQCHANGE Annual Assessment 2019

Carl Grekou

 Highlights :
  • The global configuration of currency misalignments changed little in 2018, compared to 2017, with a tendency towards the narrowing of the gaps between observed exchange rates and EQCHANGE estimated equilibrium levels;
  • The US dollar is still overvalued —although less than in 2017; the Chinese renminbi displays a very slight undervaluation and can be considered in line with its fundamental value; the British pound, the Canadian dollar and the Japanese yen are moderately undervalued;
  • The euro area, while appearing broadly in line as a whole, is again featured by two opposite situations: in contrast with the rest of the region, Finland, Germany, Ireland, the Netherlands display undervaluations;
  • Movements regarding the currency misalignments in EMEs (e.g. Brazil, India, Indonesia, Russia, Turkey) have been generally downwards, largely influenced by the exchange rate depreciations and consequently resulted in an increase of the undervaluations;
  • Latin America is marked by a heterogeneity regarding the currency misalignments with Chile, Dominican Rep., Mexico and Panama showing undervaluations higher than 15% (9% for Brazil) while Bolivia and Costa Rica (resp. Guatemala, and Uruguay) display overvaluation higher than 15% (resp. 30%); although almost all countries display an undervaluation, Africa is characterized by an important heterogeneity regarding the levels with Algeria and Swaziland displaying undervaluations higher than 50%.

 Abstract :
This publication, accompanying the 2019’s update of EQCHANGE, aims at providing an overview of exchange rate misalignments for 2018. In a nutshell, 2018 has been characterized by relatively minor movements in exchange rate misalignments except few EMEs that registered important downward movements owing from the exchange rate depreciations. This is especially the case of Turkey, and to a lesser extent, Brazil, India, Indonesia and Russia. In contrast, most of the major currencies registered a slight appreciation vis-à-vis the US dollar that generally translated in upward movements in currency misalignments. The euro area is again featured two opposite situations with Finland Germany, Ireland and the Netherlands displaying noticeable undervaluations.

 Keywords : EQCHANGE | Exchange Rates | Currency Misalignments | Imbalances

 JEL : E3, E4, E5, E6, F3
CEPII Working Paper
N°2019-19, December 2019

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