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Beyond capacity

Weekly investor research

20 March 2017

It is customary to measure economic slack using indicators that mainly focus on quantities, such as unemployment and output gaps, but in developed economies today with their deep structural problems and excessive reliance on policies that target asset prices and currencies it may be more appropriate – prudent even – to measure the business cycle using real exchange rates. Based on real exchange rates EM economies are cheap with clear room to grow, while macroeconomic risks may be rising in the US.

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