ABSTRACT
The chapter presents an evaluation of the global imbalances using the notion of Fundamental Equilibrium Exchange Rate (FEER), defined as the level of the exchange rate which allows the economy to reach the internal and external equilibrium simultaneously. Using a simple model of world trade FEERs are estimated for the main currencies (dollar, yuan, euro, yen, pound sterling, rest of the world). Large exchange rate misalignments can be observed in relation with global imbalances, especially for the dollar with an undervaluation at the end of the 1980s and an overvaluation in the first half of the 2000s, for the yuan with a long-lasting undervaluation from 1994 to 2010 and for the yen. The relation between exchange rate misalignments and growth is another issue which has been hotly debated. For illustration, preliminary results suggest the existence of a non-linear relation between both.
