By Ye Xie Oct. 28 (Bloomberg) -- The dollar is 11 percent undervalued against currencies of developed and emerging economies, and that could persist for a while, according to a study by the Federal Reserve Bank of Cleveland. The greenback is also 7 percent cheaper than its fair value against major countries’ currencies, based on purchasing power parity, a measure of the relative cost of goods in different nations, economists Owen Humpage and Caroline Herrell at the Cleveland Fed wrote in a research report published on the regional central bank’s Web site yesterday. “While the dollar currently seems undervalued relative to its purchasing-power-parity level, dollar exchange-rates need not quickly- or ever- appreciate,” the economists wrote. “Real exchange rates can show large and persistent deviations from levels consistent with purchasing power parity.” The dollar has lost 15 percent of its value since March, according to a Fed index tracking the greenback against U.S. major trading partners. Purchasing power parity is often used to gauge the long- term value of a currency on the assumption that costs in one country should equal prices in other nations after adjusted for differences in foreign-exchange rates. The dollar’s deviation from its so-called PPP value can be corrected if inflation in the U.S. quickens, driving domestic prices higher than its competitors, the researchers wrote. “The necessary adjustment can come through prices, not exchange rates,” they wrote. “Let’s hope the exchange market does not see something that the rest of us are missing.”

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