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

By Jungjin Lee, Abdul d Abiad, Prakash Kannan

February 1, 2009

Preview Citation

Format: Chicago

Jungjin Lee, Abdul d Abiad, and Prakash Kannan. Evaluating Historical CGER Assessments: How Well Have They Predicted Subsequent Exchange Rate Movements?, (USA: International Monetary Fund, 2009) accessed December 26, 2024

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.

Subject: Currencies, Exchange rate assessments, Exchange rates, Real effective exchange rates, Real exchange rates

Keywords: Interest rate, Random walk, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/032
Stock No:

WPIEA2009032
ISBN:

9781451871791
ISSN:

1018-5941

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