Multiple equilibriums in exchange rate and implications for over or undervalue of a currency

Comments on Mathew Joseph and Karan Singh “Is the Indian rupee overvalued?” 6/03/2010, http://www.eastasiaforum.org/2010/03/06/is-the-indian-rupee-overvalued/

I'm even slower today and having difficulties in linking the two charts to form an idea what the authors are talking about.

Secondly, I am not sure the concept is always sound that the exchange rate is in equilibrium at the time when the current account is balanced.

While seemingly convincing, it would not be difficult for the existence of multiple equilibriums (i.e. multi value) of the exchange rate if such a criterion is used. So there is at least a mechanism to reconcile such multiple equilibriums.

This is because there are so many factors that affect current account balance (e.g. a severe incident can cause a change in current account balance), not to mention differential growths in productivity between countries and changes in consumer preferences between countries.

A simple test, though not necessarily always sound by itself, would be to see: how has the current account balance changed in India since 2004-05? Do they correspond to the changes in the exchange rate, nominal or real?

A use of a different equilibrium point in a system of multiple equilibriums has a different implication for overvalue or undervalue!