Constructing and using national and regional TWEXs: the case for chaining

Cletus Coughlin and Patricia Pollard ()

No 1998-012, Working Papers from Federal Reserve Bank of St. Louis

Abstract: The breakdown of the Bretton Woods system of fixed exchange rates spurred the development of trade-weighted exchange rates(TWEXs). These indexes measure changes in the average foreign exchange value of a currency over time. The construction of a TWEX index requires numerous decisions. Producers of TWEXs are revisiting many of their construction decisions because, with the advent of the single currency in Europe, all TWEXs will have to be modified. In addition, countries adopting the single currency may find it useful to develop their own TWEXs, similar to those that exist for regions within the United States. All commonly-used TWEXs are based on either a Laspeyres or Paasche price index. In the present paper we argue that producers of TWEXs should consider using the chain approach for the construction of their indexes because of an issue that affects TWEXs based on either Laspeyres or Paasche price indexes - the choice of base period. We illustrate this problem and show how it leads to different measures of exchange rate changes. A chain index, which links together the exchange rates and trade weights from year-to-year, eliminates the needs for a base period.

Keywords: Foreign; exchange (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Economic and Social Measurement, 1999, 24(3/4), pp. 279-94

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/1998/1998-012.pdf Full text (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: https://EconPapers.repec.org/RePEc:fip:fedlwp:1998-012

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.1998.012

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 Scott St. Louis ().