Arbeitspapier

Competition-adjusted measures of real exchange rates

We develop a methodology to construct real effective exchange rates that incorporate two distinctive elements not accounted for in the traditional measures: i) competition in third markets and ii) adjustments for similarity in export baskets between exporters and their competitors. In addition to constructing competition-adjusted real effective exchange rates at the aggregate country level, we develop similar measures at the country-product, country-destination, and country-product-destination level. We then build a novel and public dataset where we apply this methodology to compute monthly adjusted REERs for a panel of 120 countries and 769 products. As an application, we use the dataset to examine the changes in export competitiveness in countries in Latin America and the Caribbean between May 2014 and February 2016, a period characterized by substantial movements in exchange rates. We find that using traditional measures of real effective exchange rates misallocates between one third and one half of the relevant weights, and it leads to an important underestimation of the loss in export competitiveness. Furthermore, we find that there are very significant differences across products and destinations with regards to changes in export competitiveness.

Language
Englisch

Bibliographic citation
Series: IDB Working Paper Series ; No. IDB-WP-890

Classification
Wirtschaft
Trade: General
Foreign Exchange
Subject
Real effective exchange rate
Competitiveness
Trade

Event
Geistige Schöpfung
(who)
Stein, Ernesto Hugo
Fernández Martin, Andrés
Rosenow, Samuel
Zuluaga, Victor
Event
Veröffentlichung
(who)
Inter-American Development Bank (IDB)
(where)
Washington, DC
(when)
2018

DOI
doi:10.18235/0001148
Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Stein, Ernesto Hugo
  • Fernández Martin, Andrés
  • Rosenow, Samuel
  • Zuluaga, Victor
  • Inter-American Development Bank (IDB)

Time of origin

  • 2018

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