Measuring the Real Exchange Rate: Pitfalls and Practicalities

Luci Ellis

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: The real exchange rate is an important concept in economic theory, but it is not directly observable and must be constructed, usually as an index. The construction of such indices requires a number of decisions – which currencies to include, the appropriate weighting scheme and the price measures to use – which materially alter the results. Unfortunately, theory often gives very little guidance on the appropriate assumptions to make when constructing an exchange rate index. This paper discusses the various choices, highlighting their differing implications. Some of the practical issues of calculation are also reviewed. Several exchange rate indices that have been used in analytical work in the Reserve Bank are presented. These will be updated quarterly on the Reserve Bank website at .

Keywords: effective exchange rate; index numbers; real exchange rate index (search for similar items in EconPapers)
JEL-codes: C82 F31 G15 (search for similar items in EconPapers)
Date: 2001-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
https://www.rba.gov.au/publications/rdp/2001/pdf/rdp2001-04.pdf (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:rba:rbardp:rdp2001-04

Access Statistics for this paper

More papers in RBA Research Discussion Papers from Reserve Bank of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Paula Drew ().