IDEAS home Printed from https://ideas.repec.org/p/bca/bocawp/98-20.html

Evaluating Alternative Measures of the Real Effective Exchange Rate

Author

Listed:
  • Robert Lafrance
  • Patrick Osakwe
  • Pierre St-Amant

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.

Suggested Citation

  • Robert Lafrance & Patrick Osakwe & Pierre St-Amant, 1998. "Evaluating Alternative Measures of the Real Effective Exchange Rate," Staff Working Papers 98-20, Bank of Canada.
    • Handle: RePEc:bca:bocawp:98-20
    DOI: 10.34989/swp-1998-20
    as

    Download full text from publisher

    File URL: https://doi.org/10.34989/swp-1998-20
    File Function: Abstract
    Download Restriction: no
    File URL: https://www.oar-rao.bank-banque-canada.ca/record/819/files/wp98-20.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.34989/swp-1998-20?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mark Kruger & Patrick N. Osakwe & Jennifer Page, 2000. "Fundamentals, Contagion and Currency Crises: An Empirical Analysis," Development Policy Review, Overseas Development Institute, vol. 18(3), pages 257-274, September.
    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, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gabriel Bruneau & Kevin Moran, 2017. "Exchange rate fluctuations and labour market adjustments in Canadian manufacturing industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 72-93, February.
    2. Jan Gottschalk & Carl Miller & Lanieta Rauqeuqe & Isoa Wainiqolo & Yongzheng Yang, 2016. "The Real Exchange Rate: Assessment and Trade Impact in the Context of Fiji and Samoa," IMF Working Papers 2016/168, International Monetary Fund.
    3. Peter Wilson & Henry Ng Shang Ren, 2007. "The Choice of Exchange Rate Regime and the Volatility of Exchange Rates after the Asian Crisis: A Counterfactual Analysis," The World Economy, Wiley Blackwell, vol. 30(11), pages 1646-1661, November.
    4. Peter Wilson & Henry Shang Ren Ng, 2009. "Managing Exchange Rate Volatility: A Comparative Counterfactual Analysis Of Singapore, 1994–2003," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 54(04), pages 543-568.
    5. 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.
    6. 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.
    7. Lucio Sarno, 2005. "Viewpoint: Towards a solution to the puzzles in exchange rate economics: where do we stand?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 673-708, August.
    8. 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.
    9. Nilsson, Kristian, 1999. "Alternative Measures of the Swedish Real Effective Exchange Rate," Working Papers 68, National Institute of Economic Research.
    10. Carlos A.Huertas Campos & Consuelo Villalba Torres & Julián A.Parra Polanía, 2004. "Índice de Competitividad Colombiana con Terceros Países en el Mercado Estadounidense (ITCR-C)," Borradores de Economia 273, Banco de la Republica de Colombia.
    11. Ms. Jayasri Dutta, 2002. "Dread of Depreciation: Measuring Real Exchange Rate Interventions," IMF Working Papers 2002/063, International Monetary Fund.
    12. 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.
    13. 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 Q4/06, pages 70-97.
    14. M. Nakorji & E. Udeaja & F. Ismail & S. Zimboh & T. Obiezue & O. Asuzu, 2019. "Computation of the Real Effective Exchange Rate (REER) using the Bank for International Settlement (BIS) Methodology," Economic and Financial Review, Central Bank of Nigeria, vol. 57(3), August.
    15. Serge Rey, 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.
    16. Bergvall, Anders, 2002. "The Stabilizing Properties of Floating Exchange Rates: Some International Evidence," Working Paper Series 2002:14, Uppsala University, Department of Economics.
    17. 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.
    18. Carlos Huertas Campos & Consuelo Villalba Torres & Juli�n Parra, 2004. "�Ndice De Competitividad Colombiana Con Terceros Pa�Ses En El Mercado Estadounidense (Itcr-C)," Borradores de Economia 2836, Banco de la Republica.
    19. Razek, Noha H.A. & McQuinn, Brian, 2021. "Saudi Arabia's currency misalignment and international competitiveness, accounting for geopolitical risks and the super-contango oil market," Resources Policy, Elsevier, vol. 72(C).
    20. 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.
    21. Serge Rey, 2001. "Les taux de change bilatéraux adoptés pour l’entrée dans l’Euro sont-ils des taux d’équilibre? Une tentative de réponse à l’aide de la parité des pouvoirs d’achat et de la parité des coûts," Post-Print hal-01885323, HAL.
    22. Ursula Glauninger & Thomas Url, 2017. "Revised competitiveness indicators for Austria reflect a comparatively stable competitiveness development of the Austrian economy over the longer horizon," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2/17, pages 73-110.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ramkishen S. Rajan & Rahul Sen & Reza Y. Siregar, 2002. "Hong Kong, Singapore and the East Asian Crisis: How Important were Trade Spillovers?," The World Economy, Wiley Blackwell, vol. 25(4), pages 503-537, April.
    2. Ivo Krznar, 2004. "Currency Crisis: Theory and Practice with Application to Croatia," Working Papers 12, The Croatian National Bank, Croatia.
    3. I.Igal Magendzo, 2002. "Are Devaluations Really Contractionary?," Working Papers Central Bank of Chile 182, Central Bank of Chile.
    4. Brüggemann, Axel & Linne, Thomas, 1999. "How Good are Leading Indicators for Currency and Banking Crises in Central and Eastern Europe? An Empirical Test," IWH Discussion Papers 95/1999, Halle Institute for Economic Research (IWH).
    5. Eric Santor, 2003. "Banking Crises and Contagion: Empirical Evidence," Staff Working Papers 03-1, Bank of Canada.
    6. Marc Klau & John Hawkins, 2000. "Measuring potential vulnerabilities in emerging market economies," BIS Working Papers 91, Bank for International Settlements.
    7. Olivier de Bandt & Sheheryar Malik, 2010. "Is there Evidence of Shift-Contagion in International Housing Markets?," Working papers 295, Banque de France.
    8. Moh. Khusaini, 2002. "The Role of Economic Fundamentals in Explaining Indonesian Currency Crisis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0219, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    9. Muhd-Zulkhibri Abdul Majid, 2004. "Sources Of Asian Currency Crisis," International Finance 0405020, University Library of Munich, Germany.
    10. Gonzalez-Hermosillo Gonzalez, B.M., 2008. "Transmission of shocks across global financial markets : The role of contagion and investors' risk appetite," Other publications TiSEM d684f3c7-7ad8-4e93-88cf-a, Tilburg University, School of Economics and Management.
    11. Massacci, D., 2007. "Identification and Estimation in an Incoherent Model of Contagion," Cambridge Working Papers in Economics 0744, Faculty of Economics, University of Cambridge.
    12. M. Isabel Campos & M. Araceli Rodríguez, "undated". "Crises and Credibility in a Target Zone: A Logit From a Markov-Switching Model," Working Papers on International Economics and Finance 00-05, FEDEA.
    13. Kinza Yousfani & Hasnain Iftikhar & Paulo Canas Rodrigues & Elías A. Torres Armas & Javier Linkolk López-Gonzales, 2025. "Global Shocks and Local Fragilities: A Financial Stress Index Approach to Pakistan’s Monetary and Asset Market Dynamics," Economies, MDPI, vol. 13(8), pages 1-27, August.
    14. Kaabia, Olfa & Abid, Ilyes & Guesmi, Khaled, 2013. "Does Bayesian shrinkage help to better reflect what happened during the subprime crisis?," Economic Modelling, Elsevier, vol. 31(C), pages 423-432.
    15. Ahec Šonje, Amina & Babić, Ante, 2002. "Measuring and predicting currency disturbances in Croatia: the “signals” approach," MPRA Paper 83137, University Library of Munich, Germany, revised Apr 2002.
    16. Jacob M. Meyer, 2021. "Political constraints and currency crises in emerging markets and less developed economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(3), pages 495-554, August.
    17. Ahec Šonje, Amina & Babić, Ante & Mlinarević, Katarina, 2003. "Determinants of currency disturbances in transition economies of Central and Eastern Europe," MPRA Paper 83140, University Library of Munich, Germany, revised Mar 2003.
    18. Nakatani, Ryota, 2018. "Real and financial shocks, exchange rate regimes and the probability of a currency crisis," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 60-73.
    19. Mislav Brkic, 2021. "Costs and benefits of government borrowing in foreign currency: is it a major source of risk for EU member states outside the Euro?," Public Sector Economics, Institute of Public Finance, vol. 45(1), pages 63-91.
    20. Kam-hon CHU & Bob Y. C. Chan & Chor-yiu Sin, 2000. "Contagion Effects, Informational Effects, and Economic Fundamentals: An Analysis of Exchange Rate Dynamics during the Asian Currency Crisis," Working Papers 022000, Hong Kong Institute for Monetary Research.

    More about this item

    Keywords

    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:98-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.