A Stochastic Measure of International Competitiveness

Kenneth Clements, Izan H.y and Yihui Lan ()
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Izan H.y: Department of Economics, The University of Western Australia
Yihui Lan: Department of Economics, The University of Western Australia

No 05-15, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Government agencies around the world produce indexes that purport to measure international competitiveness. The most common version is the real effective exchange rate, which is some form of weighted average of the real exchange rates of the country’s trading partners. Such indexes convey a false sense of accuracy as they ignore the volatility among the component real exchange rates of the partners. As long as all real rates do not move in an equiproportionate fashion, in a fundamental sense real effective exchange rates are subject to estimation uncertainty. We demonstrate show how this uncertainty can be measured and used to enhance current practice.

Pages: 62 pages
Date: 2005
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https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%2 ... 5/05_15_Clements.pdf First version, 2005 (application/pdf)

Related works:
Journal Article: A Stochastic Measure of International Competitiveness* (2009)
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