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Real Effective Exchange Rate: Problems of Construction

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  • Aleš Čapek

Abstract

Real effective exchange rates belong among principal indicators of price competitiveness. There exist two main approaches to their calculation: one based on the comparison of foreign and domestic price levels, the other based on the comparison of development of domestic prices of tradables and nontradables. In this article different types of real effective exchange rates are calculated. The calculations show in general that the CZK had been appreciating in real terms during the analysed period. This result is achieved using various types of price and wage cost indexes as well as different weighting schemes. The calculations also show that the real effective exchange rate against the DEM is good approximation of the real effective exchange rate. The real effective exchange rate against the USD behaves quite differently and thus does not seem to be good analytical tool for measuring external price competitiveness of the Czech economy.

Suggested Citation

  • Aleš Čapek, 1998. "Real Effective Exchange Rate: Problems of Construction," Politická ekonomie, Prague University of Economics and Business, vol. 1998(5).
    • Handle: RePEc:prg:jnlpol:v:1998:y:1998:i:5:id:247
    DOI: 10.18267/j.polek.247
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