Front Matter

Front Matter

Jaewoo Lee, Jonathan Ostry, Alessandro Prati, Luca Ricci, and Gian Milesi-Ferretti
Published Date:
April 2008
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© 2008 International Monetary Fund

Production: IMF Multimedia Services Division

Typesetting: Choon Lee

Figures: Julio Prego

Cataloging-in-Publication Data

Exchange rate methodologies : CGER assessments / by Jaewoo Lee … [et al.] — Washington, DC : International Monetary Fund, 2008.

p. cm. — (Occasional paper ; 261)

  • Includes bibliographical references.
  • ISBN 978-1-58906-638-0

1. Foreign exchange rates. 2. Balance of payments. 3. Equilibrium (Economics) 4. Alien property. I. Lee, Jaewoo. II. International Monetary Fund. III. Occasional paper (International Monetary Fund) ; 261 HG3821 .E934 2008

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An emphasis on exchange rate surveillance—a topic that has always been at the core of the IMF’s mandate—received renewed impetus in the IMF’s Medium-Term Strategy (MTS),1 that called inter alia for stronger emphasis on multilateral surveillance, macro-financial linkages, and the implications of globalization, reflecting the stronger economic ties among member countries brought about by the rapid increase in international trade and financial integration. The exchange rate analysis conducted by the IMF’s Consultative Group on Exchange Rate Issues (CGER)—which was formed in the mid-1990s with a mandate to provide exchange rate assessments for a number of advanced economies from a multilateral perspective—has accordingly been expanded to cover both key advanced economies and major emerging market economies. This paper summarizes the methodologies that underpin this expanded analysis.

This paper was prepared under the direction of Jonathan D. Ostry (Deputy Director, Research Department). Its main authors are Jaewoo Lee, Gian Maria Milesi-Ferretti, and Luca Antonio Ricci, with substantial contributions from Jonathan Ostry and Alessandro Prati.

Background research on expanding the CGER methodology to include emerging market countries was led by Gian Maria Milesi-Ferretti (Chief of the Exchange Rate Issues Division in the Research Department). Tamim Bayoumi played an instrumental role in the early phase of the research, and Sarma Jayanthi has been the critical lynchpin in data management and quantitative analysis.

The authors would also like to acknowledge the significant contributions made by José Antonio Rodriguez-Lopez to the implementation of the external sustainability methodology, and by Marco Arena, Giang Do, and Jungjin Lee who provided excellent research assistance. Carlo Cottarelli and Ketil Hviding of the Policy Development and Review Department, as well as numerous other colleagues on the IMF staff, provided comments and suggestions. The authors are grateful to Katia Berruetta and Laura Leon for administrative support, and to Marina Primorac of the External Relations Department for editing and coordinating production of the publication.

The paper has also benefited from the discussion at an IMF Executive Board seminar in September 2006. The opinions expressed in the paper are those of the authors and do not necessarily reflect the views of the IMF or its Executive Directors.

List of Abbreviations


current account balance


Consultative Group on Exchange Rate Issues


reduced-form equilibrium real exchange rate


external sustainability


dynamic ordinary least squares


International Financial Statistics


macroeconomic balance


Medium-Term Strategy


manufacturing unit value index


net foreign assets (net international investment position)


United Nations


World Development Indicators


World Economic Outlook

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