EQCHANGE: A World Database on Actual and Equilibrium Effective Exchange Rates *

Transcription

1 : A World Database on Actual and Equilibrium Effective Exchange Rates * Banque de France December 14 th, 2018 * is a joint work with C. COUHARDE a, A-L. DELATTE c,b,a, C. GREKOU b,a, V. MIGNON a,b and F. MORVILLIER a. a EconomiX-CNRS, University of Paris Nanterre, France. b CEPII, France. c CNRS, France.

2 Introduction Alternative sources Policy briefs: Peterson Institute for International Economics (PIIE) Reports: External Sector Reports (IMF) Working papers: IMF, CEPII,... 2 / 26

3 To fill the gap,... Two sub-databases providing information on: Nominal and Real Effective Exchange Rates (NEER & REER): 187 countries; three different weighting schemes two panels of trading partners (186 and top 30) period: Behavioral Equilibrium Exchange Rate (BEER) estimates and corresponding Currency Misalignments (Mis): 182 countries; Different specifications/options period: / 26

4 The Effective Exchange Rates database

5 The Effective Exchange Rates (EER) database: coverage 187 countries over the period 5 / 26

6 The Effective Exchange Rates (ERR) database: methodological features The indices Real effective exchange rate (REER): weighted average of real bilateral exchange rates against each trade partner: REER i,t = NEER i,t CPI i,t CPI Foreign j,t (1) where NEER i,t = N j=1 S ij, wij,t t is the nominal effective exchange rate of country i; CPI i,t stands for the Consumer Price Index of country i; CPI Foreign j,t = N j=1 CPI j wij,t t ; w ij,t is the trade-based weight associated to partner j. 6 / 26

7 The Effective Exchange Rates (EER) database: methodological features The trade weights ( M i,t w ij,t = M i,t + X i,t ) w Imp. ij,t + ( X i,t M i,t + X i,t ) w Exp. ij,t (2) where w Imp ij,t and w Exp ij,t are partner country j s import and export weights; M i,t and X i,t are total imports and total exports of country i. The import and export weights of each partner j are: w Imp ij,t = M j i,t /M i,t (3) w Exp ij,t = X j i,t /X i,t (4) where M j i,t (resp. X j i,t ) denotes import (resp. export) flows into (of) country i from (to) country j at period t. 7 / 26

8 The Effective Exchange Rates (EER) database: methodological features The weighting systems Fixed weights: (i) , (ii) ; Time-varying weights: 5-year averages.... vis-à-vis 186 trade partners Broad Indices or... vis-à-vis the top 30 trade partners Narrow Indices 8 / 26

9 The Effective Exchange Rates (EER) database: comparisons Fuzzy? 9 / 26

10 The Effective Exchange Rates (EER) database: some REERs 10 / 26

11 The Effective Exchange Rates (EER) database: some REERs 11 / 26

12 The Effective Exchange Rates (EER) database: some REERs 12 / 26

13 The Effective Exchange Rates (EER) database: some REERs 13 / 26

14 The Equilibrium Real Exchange Rates (ERER) and Currency Misalignments (CM) database

15 The ERER and CM database: coverage 182 countries over different time periods 15 / 26

16 Introduction The main approaches Approach Background Horizon Reference PPP (V)LR CHEER PPP + UIP SR Juselius (1991) ITMEER UIP + risk premium MT Wadhwani (1999) FEER (DEER) Macroeconomic balance MT Williamson (1983) BEER (PEER) UIP + risk premium LR Clark & MacDonald (1998) APEER None MT/LR NATREX FEER + stock effects MT/LR Stein & Allen (1997) ESA External balance MT IMF 16 / 26

17 Introduction The BEER approach: why? The Fundamental Equilibrium Exchange Rate (FEER) approach Normative content The Behavioral Equilibrium Exchange Rate (BEER) approach No ad hoc judgements (Positive approach) Data availability Wider coverage (AEs, EMEs, DCs) The External sustainability approach (ESA) Normative content All the approaches are complementary Consultative Group on Exchange Rate Issues (CGER; IMF) 17 / 26

18 The ERER and CM database: empirical framework Models: reer i,t = α i + β 1 BS i,t + ε i,t (Model 1) reer i,t = α i + β 1 BS i,t + β 2 nfa i,t + ε i,t (Model 2) reer i,t = α i + β 1 BS i,t + β 2 nfa i,t + β 3 tot i,t + ε i,t (Model 3) reer i,t = α i + β 1 BS i,t + β 2 nfa i,t + β 3 tot i,t + β 4 gov i,t + ε i,t (Model 4) reer i,t = α i + β 1 BS i,t + β 2 nfa i,t + β 3 tot i,t + β 4 gov i,t + β 5 open i,t + ε i,t (Model 5) Then: Mis i,t = reer i,t reer i,t (5) Estimations: (C)PMG Econometrical details Samples: All, AEs, EMEs, DCs, Monetary unions, geographical (sub-) regions 18 / 26

19 The ERER and CM database: empirical framework The fundamentals The relative productivity (Balassa-Samuelson effect: BS) BS i,t = GDPpc(PPP) i,t N j=1 GDPpc(PPP) j, wij,t t GDP pc (PPP) are from the PWT 9.0, WDI (WB), WEO (IMF) (6) Graph The net foreign asset position (nfa): Lane & Milesi-Ferretti (2007), The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, Updated with CA data: WEO (IMF) The terms of trade (tot): UNCTAD, WDI (WB), OECD, Eikon Thomson Reuters The government spending (gov): WDI Trade openness (open): WDI, UNCTAD 19 / 26

20 Extensions The NEER and REER databases: Double weighting ULC-based REERs The ERER and Mis database: Productivity measures: Tradable/Non-tradable sector (sectoral data) Misalignments based on price level (augmented PPP misalignments) (Static) FEER approach 20 / 26

21 annual assessment / 26

22 annual assessment: the major currencies/economies Fig. 5 Currency misalignment in 2017 (estimations range) Note: The red dot lines indicate the +10% and -10% levels. 22 / 26

23 Divergences in Mis estimates: CEPII vs. IMF ESR 2018 Table C.1 Comparison of estimates: and External Sector Report External Sector Report Staff-assessed REER gap Estimates by approach a Midpoint Low High CA REER REER Std. Mis index level Err. Australia Staff Belgium Staff Brazil Staff Canada Staff China Staff Euro area b Staff France / Germany /-30 NR Hong Kong Staff NR NR India Staff Indonesia Staff Italy Staff Japan Staff Korea Staff / 26

24 Divergences in Mis estimates: CEPII vs. IMF ESR 2018 Table C.1 Comparison of estimates: and External Sector Report External Sector Report Staff-assessed REER gap Estimates by approach a Midpoint Low High CA REER REER Std. Mis index level Err. Malaysia Staff Mexico Staff Netherlands Poland Russia Staff Saudi Arabia Staff NR NR Singapore Staff NR NR South Africa Staff Spain In line Sweden / Switzerland Staff Thailand Staff Turkey United Kingdom Staff United States / 26

25 Thank you for your attention 25 / 26

26 Productivity measures Back 26 / 26