Research Briefing | Aug 27, 2021

A framework for evaluating EM currencies’ fair value

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In our recent extended panel assessment on EM FX, we found most currencies have yet to recover ‘fair value’ after the March 2020 overshooting event. Estimates considered; regional stories emerge.

What you will learn:

  • In Latin America, massive political noise has been a key ingredient for larger FX discounts. Meanwhile, EMEIA currency misalignments are mixed, with forecasts consistent with fundamentals continuing to improve in the near future.
  • Our FX valuation model produces common elasticities for 15 EM economies.
  • Model residuals are interpreted as misalignments, decoupled from key economic fundamentals controlled by high-frequency variables.

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