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

29 Pages Posted: 18 Mar 2009

See all articles by Abdul G. Abiad

Abdul G. Abiad

International Monetary Fund (IMF) - Research Department

Prakash Kannan

International Monetary Fund (IMF)

Jungjin Lee

International Monetary Fund (IMF)

Date Written: March 2009

Abstract

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.

Keywords: Exchange rate assessments, Developed countries, Emerging markets, Exchange rate policy surveillance, Real effective exchange rates, Current account balances, Economic models, Cross country analysis

Suggested Citation

Abiad, Abdul G. and Kannan, Prakash and Lee, Jungjin, Evaluating Historical CGER Assessments: How Well Have They Predicted Subsequent Exchange Rate Movements? (March 2009). IMF Working Papers, Vol. , pp. 1-27, 2009. Available at SSRN: https://ssrn.com/abstract=1361373

Abdul G. Abiad (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Prakash Kannan

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
(202)623-8806 (Phone)

Jungjin Lee

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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