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A review of the trade weighted exchange rate index

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  • Hannah Kite

    (Reserve Bank of New Zealand)

Abstract

Over the past year the Bank has completed a review of the official trade weighted index (TWI). This article documents that review, noting issues of importance when considering the most appropriate effective exchange rate for a central bank, and presenting a number of different weighting methodologies. Whilst different effective exchange rate indices are suited to different purposes, at this time we believe the current official five-currency TWI remains a good summary measure for monetary policy purposes. However, the Bank will also begin publishing an extended 14 currency TWI, which includes the currencies of a number of Asian economies with which New Zealand’s bilateral trade has increased markedly in recent years. This ‘extended’ TWI will be published on the Bank’s website as an analytical series and the properties of the series will be further monitored as trade flows develop.

Suggested Citation

  • Hannah Kite, 2007. "A review of the trade weighted exchange rate index," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, June.
    • Handle: RePEc:nzb:nzbbul:june2007:3
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2007/2007jun70-2kite.pdf
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    References listed on IDEAS

    as
    1. International Monetary Fund, 2005. "New Rates from New Weights," IMF Working Papers 2005/099, International Monetary Fund.
    2. Michael P. Leahy, 1998. "New summary measures of the foreign exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 84(Oct), pages 811-818, October.
    3. David Hargreaves & Bruce White, 1999. "Measures of New Zealand's effective exchange rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, September.
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    Cited by:

    1. Erika Arraño & Faruk Miguel, 2015. "Tipo de Cambio Real: Revisión Internacional," Economic Statistics Series 112, Central Bank of Chile.
    2. Gemma Mabin, 2010. "New Zealand's Exchange Rate Cycles: Evidence and Drivers," Treasury Working Paper Series 10/10, New Zealand Treasury.
    3. Daan Steenkamp, 2014. "Measuring New Zealand’s effective exchange rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 77, pages 1-15, December.

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