IMF Occasional Paper No. 209

• Pages: 3-

Page 3

Methodology for Current Account and Exchange Rate Assessments

Peter Isard, Hamid Faruqee, G. Russell Kincaid, and Martin J. Fetherston

In exercising its surveillance responsibilities, the IMF makes judgments about the extent to which prevailing exchange rates deviate from levels consistent with medium-run fundamentals. This paper describes a methodology, developed by an interdepartmental Coordinating Group on Exchange Rates (CGER), for assessing exchange rates among industrial country currencies. The assessments employ a multilateral framework, drawing on both a macroeconomic balance approach and purchasing power parity considerations. Although CGER's assessments are not precise, the framework imposes consistency across currencies and over time. The interpretation given to substantial deviations between prevailing exchange rates and their medium-run equilibrium levels emphasizes that such deviations can persist for long periods and do not necessarily establish a case...