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FX Fair Value Estimates

We have developed a framework to examine where widening current account deficits suggest that falling currencies could still be playing catch-up with deteriorating fundamentals. The methodology first calculates an underlying current account position taking into account the cyclical position of a country and its trading partners, and past exchange rate moves. It then compares the underlying current account to estimates for equilibrium saving-investment balances. In the last step, current account gaps are mapped into required real exchange rate adjustments using trade elasticities

Cross-Country Summary

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