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Evaluating Alternative Measures of the Real Effective Exchange Rate

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Author Info

  • Lafrance, Robert
  • Osakwe, Patrick
  • St-Amant, Pierre

Abstract

This paper discusses the merits and shortcomings of alternative price indices used in constructing real effective exchange rate indices and examines the effects of different weighting schemes. It also compares selected measures of the real effective exchange rate in terms of their ability to explain movements in Canadian net exports and real output. The paper argues that, although different weighting schemes may at times provide useful and complementary information, the choice of a weighting scheme does not, in general, significantly affect on measures of Canada's competitiveness. The choice of a price index is usually the critical factor. In particular, real effective exchange rate indices that are computed using unit labour costs explain movements in Canadian net exports and real output significantly better than those based on consumer price indices.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/05/wp98-20.pdf
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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 98-20.

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Length: 29 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:bca:bocawp:98-20

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Related research

Keywords: exchange rate ; consumer price;

References

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  1. Kruger, Mark & Osakwe, Patrick N. & Page, Jennifer, 1998. "Fundamentals, Contagion and Currency Crises: An Empirical Analysis," Working Papers 98-10, Bank of Canada.
  2. Patrick N. Osakwe & Shouyong Shi, 2004. "International Borrowing, Specialization, and Unemployment in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 41-59, 02.
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Citations

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Cited by:
  1. Carlos A.Huertas Campos & Consuelo Villalba Torres & Julián A.Parra Polanía, . "Índice de Competitividad Colombiana con Terceros Países en el Mercado Estadounidense (ITCR-C)," Borradores de Economia 273, Banco de la Republica de Colombia.
  2. Gabriel Bruneau & Kevin Moran, 2012. "Exchange Rate Fluctuations and Labour Market Adjustments in Canadian Manufacturing Industries," Cahiers de recherche 1227, CIRPEE.
  3. Bergvall, Anders, 2002. "The Stabilizing Properties of Floating Exchange Rates: Some International Evidence," Working Paper Series 2002:14, Uppsala University, Department of Economics.
  4. Forsyth, Peter & Dwyer, Larry, 2010. "Exchange rate changes and the cost competitiveness of international airlines: The Aviation Trade Weighted Index," Research in Transportation Economics, Elsevier, vol. 26(1), pages 12-17.
  5. Peter Wilson, 2007. "Exchange Rate Cooperation in East Asia – Why a Basket Approach may be best," Macroeconomics Working Papers 22586, East Asian Bureau of Economic Research.
  6. Walpurga Köhler-Töglhofer & Christa Magerl & Peter Mooslechner, 2006. "Revised and New Competitiveness Indicators for Austria Reflect Improvement Trend since EMU Accession," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 70–97.
  7. Rey, Serge, 2001. "Les taux de change bilatéraux adoptés pour l’entrée dans l’euro sont-ils des taux d’équilibre?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 77(1), pages 75-112, mars.
  8. Peter Wilson & Henry Ng Shang Ren, 2006. "Managing Exchange Rate Volatility: A Comparative Counterfactual Analysis of Singapore 1994 to 2003," SCAPE Policy Research Working Paper Series 0608, National University of Singapore, Department of Economics, SCAPE.
  9. Nilsson, Kristian, 1999. "Alternative Measures of the Swedish Real Effective Exchange Rate," Working Paper 68, National Institute of Economic Research.
  10. Jayasri Dutta, 2002. "Dread of Depreciation," IMF Working Papers 02/63, International Monetary Fund.
  11. Walpurga Köhler-Töglhofer & Christa Magerl, 2013. "Revision of Price/Cost Competitiveness Indicators for Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 93–119.
  12. Peter Wilson & Henry Ng Shang Ren, 2006. "Managing Exchange Rate Volatility : A Comparative Counterfactual Analysis Of Singapore 1994 To 2003," Macroeconomics Working Papers 22584, East Asian Bureau of Economic Research.

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