Economics at your fingertips  

To chain or not to chain trade-weighted exchange rate indexes

Jerram C. Betts, Cletus Coughlin () and Patricia Pollard ()

No 1996-010, Working Papers from Federal Reserve Bank of St. Louis

Abstract: With the advent of chain calculations for the U.S. national income and product accounts, it seems reasonable to contemplate using the chain approach for other indexes, such as trade-weighted exchange rates (TWEXs). A fundamental criticism of measuring the growth of gross domestic product by a fixed-base-year method is that the estimates are highly sensitive, especially when the economy?s structure is changing dramatically, to the arbitrary choice of the base year. Such a criticism can be levied against TWEXs. In fact, even TWEXs constructed using a Paasche index rather than a Laspeyres index have problems related to base periods. We examine theoretically and empirically the use ofa chain TWEX in relation to two well-known TWEX indexes: the Federal Reserve Bank of Atlanta index, which uses a Laspeyres index, and the Federal Reserve Bank of Dallas index, which uses a Paasche index. The choice of base year alters the behavior ofthe dollar in these two indexes. We contrast this result with the behavior of the dollar in comparable chain TWEXs, where the base year sensitivity is absent. Our results indicate that developers of TWEXs, as well as those revising TWEXs, should consider a chain approach. Furthermore, users need to be aware of the sensitivity of TWEXs to changes in either the base period for trade weights or the reference base period for exchange rates

Keywords: Foreign exchange rates; Dollar, American (search for similar items in EconPapers)
Date: 1997
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Published in The International Trade Journal, Fall 1998

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Anna Oates ().

Page updated 2023-01-23
Handle: RePEc:fip:fedlwp:1996-010