Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154587
Authors: 
Schmitz, Martin
De Clercq, Maarten
Fidora, Michael
Lauro, Bernadette
Pinheiro, Cristina
Year of Publication: 
2012
Series/Report no.: 
ECB Occasional Paper 134
Abstract: 
This paper describes in detail the methodology currently used by the European Central Bank (ECB) to determine the nominal and real effective exchange rate indices of the euro. Building on the work of Buldorini et al. (2002), it shows how the ECB’s techniques for calculating effective exchange rates have been updated over time and explains the related theoretical foundations. In particular, the paper discusses the use and development of trade weights based on trade in manufactured goods (taking account of third market effects), the trading partners selected, and the choice of deflators for constructing the real effective exchange rate indices. In addition, it presents evidence on exchange rate and competitiveness developments for both the euro area as a whole and individual Member States. While the growing importance of China is reflected in the updated trade weights of euro effective exchange rates, it appears that the increasing integration of the euro area with other European economies accounts for the largest variation in trade weights. The US dollar, an anchor currency for a number of large emerging markets, continues to play an important role for the effective exchange rate of the euro and euro area competitiveness. Overall, euro area competitiveness has improved slightly since the introduction of the single currency, despite significant heterogeneity within the euro area.
Subjects: 
competitiveness
EER
HCI
NEER
REER
trade weights
JEL: 
C43
D12
E31
Document Type: 
Research Report

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