Foreign currency and GDP output gaps

<body><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td> <font face="garamond, times new roman, times" mstheme> <p> Capacity Utilisation </p> <p> </p> </font mstheme> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td valign="top" width="1%"><font face="garamond, times new roman, times" mstheme> <p> </p> </font mstheme></td><td valign="top" width="24"></td><td valign="top"> <p>This page uses frames, but your browser doesn't support them. </p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Forex: Spare Capacity</font></strong></p> <p><strong><em><font face="Arial Narrow" size="2" color="#00FF00">Buy when the coloured lines are at the low end of their range, </font><font face="Arial Narrow" size="2" color="#FF0000">sell when they are high</font></em></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">This tool looks at the historical relationship and likely future development of a variable closely correlated with exchange rate movements - namely differences in the pressure of demand between economies, as expressed in the amount of spare capacity. The historic data is a set of annual estimates calculated by PIT for all countries in the database. This ratio is similar to IMF and OECD definitions for GDP <a href="TestStation_ModellingFrame.htm" target="_top">Output Gaps</a>. For comparability, exchange rates have been rebased to set year-end 1994 at 100.</font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">In each chart the foreign currency index is shown as </font><font face="Arial Narrow" size="2" color="#FFFFFF">the thick white line</font><font face="Arial Narrow" size="2" color="#C0C0C0"> on the right hand axis. The main explanatory variable, domestic less foreign spare capacity, uses the left hand axis, shown as </font><font face="Arial Narrow" size="2" color="#FFFF00">the thin yellow line</font><font face="Arial Narrow" size="2" color="#C0C0C0">. A Best Guess as to the future development of the variable is also shown on the left hand axis, as </font><font face="Arial Narrow" size="2" color="#FF0000">the thin orange line.</font></strong></p> <p><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>Best Guesses show what would happen to the difference in the pressure of demand based on forecasts for spare capacity, both at home and abroad. Depending on whether the investment perspective is Dollar-based or relative to a global benchmark, the relevant foreign forecasts are those for the United States or a GDP weighted global average. PIT forecasts of each GDP output gap are in turn based on consensus estimates for GDP.</strong></font></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Owing to the conversion of legacy currencies into Euros, analysis is provided on the common currency, rather than for individual countries. Historical data is provided by creating synthetic GDP-weighted time-series for the component currencies, expressed in the European Currency Unit.</font></strong></p> <hr color="#FF0000"> <p align="center"><font size="2">[ <a href="global_asset_allocation_sitemap.htm" target="_top">Site Map</a> ] [ <a href="index.htm" target="_top">Home</a> ]</font><font size="2" face="Arial"><br> </font><font size="2">[ <a href="Chart_Library.htm" target="_top">Chart Library</a> ] [ <a href="ChartLibrary_foreign_currency.htm" target="_top">Forex Charts</a> ]</font> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td><font face="garamond, times new roman, times" mstheme> <p align="left"><font face="Arial Narrow" size="1" color="#C0C0C0">Copyright © 1999 Professional Investment Tools Ltd., authorised by the Financial Securities Authority. An Independent Financial Adviser. Please read Financial Health Warning and Licence Agreement. UK laws apply exclusively. Principal sources: Consensus Economics, Corel Corp., FIBV, Global Financial Data, PIT, national governments and stock exchanges. Information and opinions are based on sources believed to be reliable and accurate. However PIT does not guarantee this to be the case, and does not accept liability for any loss arising. This is for information only and does not constitute a solicitation to deal in any securities. Opinions are liable to change. Past performance is no guarantee of future success. Last modified: January 05, 2001</font><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>.</strong></font></p> </font mstheme></td></tr></table></body>