Abstract
The many industrial countries which have in recent years opted for a managed floating exchange rate regime are now in need of methods for assessing the appropriateness of their exchange rates and for guiding their exchange rate management policies. Three methods are considered here: the purchasing power parity (PPP) method, the underlying payments disequilibria (UPD) approach, and the asset-market disturbances (AMD) method. All three methods are found to have serious weaknesses, but, if used with care, provide rough yardsticks that would help the authorities in preventing their exchange rates from becoming widely undervalued or overvalued.
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