DP5860 New Rates from New Weights

Author(s): Tamim Bayoumi , Sarma Jayanthi , Jaewoo Lee

Publication Date: October 2006

Keyword(s): weight , effective exchange rate

JEL(s): F10 , F30

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP5860.asp.asp

This paper describes the result and the methodology of updating the IMF's nominal and real effective exchange rate weights on the basis of trade data over 1999-2001. The underlying framework is an updated version of the IMF's current effective exchange rate calculation, which uses weights largely based on 1989-91 data. Since then, substantial changes have occurred in international trade relations, warranting a recalculation of effective exchange rate indices on the basis of new trade patterns. Updated weights show that the United States and developing countries (most notably China) have grown in their importance in global trade, while Japan and the European Union have declined, with substantial implications for the path of the dollar and exchange rate effects of emerging market crises since 1995.