IDEAS home Printed from https://ideas.repec.org/p/rba/rbardp/rdp2001-04.html

Measuring the Real Exchange Rate: Pitfalls and Practicalities

Author

Listed:
  • Luci Ellis

    (Reserve Bank of Australia)

Abstract

The real exchange rate is an important concept in economic theory, but it is not directly observable and must be constructed, usually as an index. The construction of such indices requires a number of decisions – which currencies to include, the appropriate weighting scheme and the price measures to use – which materially alter the results. Unfortunately, theory often gives very little guidance on the appropriate assumptions to make when constructing an exchange rate index. This paper discusses the various choices, highlighting their differing implications. Some of the practical issues of calculation are also reviewed. Several exchange rate indices that have been used in analytical work in the Reserve Bank are presented. These will be updated quarterly on the Reserve Bank website at .

Suggested Citation

  • Luci Ellis, 2001. "Measuring the Real Exchange Rate: Pitfalls and Practicalities," RBA Research Discussion Papers rdp2001-04, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2001-04
    as

    Download full text from publisher

    File URL: https://www.rba.gov.au/publications/rdp/2001/pdf/rdp2001-04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, December.
    2. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    Full references (including those not matched with items on IDEAS)

    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. Santos, João & Domingos, Tiago & Sousa, Tânia & St. Aubyn, Miguel, 2016. "Does a small cost share reflect a negligible role for energy in economic production? Testing for aggregate production functions including capital, labor, and useful exergy through a cointegration-base," MPRA Paper 70850, University Library of Munich, Germany.
    2. Muhammad Ali Chaudhary & Eatzaz Ahmad & Abid A. Burki & Mushtaq A. Khan, 1999. "Industrial Sector Input Demand Responsiveness and Policy Interventions," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 1083-1100.
    3. Claude Hillinger, 2002. "A General Theory of Price and Quantity Aggregation and Welfare Measurement," CESifo Working Paper Series 818, CESifo.
    4. McGath, Christopher & McElroy, Robert G. & Strickland, Roger & Traub, Larry & Convey, Theodore & Short, Sara D. & Johnson, James & Green, Report & Ali, Mir B. & Vogel, Stephen, 2009. "Forecasting Farm Income: Documenting USDA's Forecast Model," Technical Bulletins 184311, United States Department of Agriculture, Economic Research Service.
    5. W. Erwin Diewert & Robert C. Feenstra, 2021. "Estimating the Benefits of New Products," NBER Chapters, in: Big Data for Twenty-First-Century Economic Statistics, pages 437-473, National Bureau of Economic Research, Inc.
    6. Thomas von Brasch & Håkon Grini & Magnus Berglund Johnsen & Trond Christian Vigtel, 2021. "An exact additive decomposition of the weighted arithmetic mean," Discussion Papers 944, Statistics Norway, Research Department.
    7. Redding, Stephen J. & Weinstein, David E., 2016. "A unified approach to estimating demand and welfare," LSE Research Online Documents on Economics 67681, London School of Economics and Political Science, LSE Library.
    8. Yu Chen & Chen Zhen, 2022. "The potential impact of reducing sodium in packaged food: The case of the Chinese instant noodles market," Agribusiness, John Wiley & Sons, Ltd., vol. 38(1), pages 3-20, January.
    9. David Rezza Baqaee & Emmanuel Farhi, 2019. "The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem," Econometrica, Econometric Society, vol. 87(4), pages 1155-1203, July.
    10. Xiding Chen & Qinghua Huang & Weilun Huang & Xue Li, 2018. "The Impact of Sustainable Development Technology on a Small Economy—The Case of Energy-Saving Technology," IJERPH, MDPI, vol. 15(2), pages 1-11, February.
    11. Hajargasht, Gholamreza & Rao, D.S. Prasada, 2019. "Multilateral index number systems for international price comparisons: Properties, existence and uniqueness," Journal of Mathematical Economics, Elsevier, vol. 83(C), pages 36-47.
    12. Diewert, Erwin & FOX, Kevin J. & Paul Schreyer, 2017. "The Allocation and Valuation of Time," Microeconomics.ca working papers erwin_diewert-2017-5, Vancouver School of Economics, revised 04 May 2017.
    13. Tauer, Loren, 2019. "Farmer productivity by age in the United States," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 8(2), August.
    14. François-Charles Wolff & Frédéric Salladarré, 2022. "A first-sale price index of seafood products," Post-Print hal-03913085, HAL.
    15. Melvyn A. Fuss & Leonard Waverman, 1985. "Productivity Growth in the Automobile Industry, 1970-1980: A Comparisonof Canada, Japan and the United States," NBER Working Papers 1735, National Bureau of Economic Research, Inc.
    16. Rotemberg, Julio J & Driscoll, John C & Poterba, James M, 1995. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 67-83, January.
    17. Athanasoglou, Panayiotis P. & Georgiou, Evangelia A. & Staikouras, Christos C., 2009. "Assessing output and productivity growth in the banking industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1317-1340, November.
    18. Managi, Shunsuke & Opaluch, James J. & Jin, Di & Grigalunas, Thomas A., 2006. "Stochastic frontier analysis of total factor productivity in the offshore oil and gas industry," Ecological Economics, Elsevier, vol. 60(1), pages 204-215, November.
    19. McCullough, Ellen, 2023. "The potential for a service-facing structural transformation in Tanzania," 2023 Annual Meeting, July 23-25, Washington D.C. 335738, Agricultural and Applied Economics Association.
    20. repec:use:tkiwps:3232 is not listed on IDEAS
    21. Michael D. Bordo & John V. Duca, 2025. "Money Matters: Broad Divisia Money and the Recovery of the US Nominal GDP From the COVID‐19 Recession," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 44(3), pages 1071-1096, April.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    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:rba:rbardp:rdp2001-04. 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: Paula Drew (email available below). General contact details of provider: https://edirc.repec.org/data/rbagvau.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.