New Rates from New Weights
IMF Working Papers, May 1, 2005
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Bibliographic details
- Published: May 1, 2005
- Series: IMF Working Papers
Overview
- Publication date: May 1, 2005
- This paper describes the result and the methodology of updating 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.
Methodology
- Effective exchange rate weights are recalculated using trade data covering 1999-2001.
- The updated framework retains the IMF's effective exchange rate calculation approach while replacing the older weights (1989-91) with weights reflecting new trade patterns observed in 1999-2001.
Key Findings
- Updated weights show that the United States and developing countries (most notably China) have grown in their importance in global trade.
- Japan and the European Union have declined in importance in global trade.
- These changes in weights have substantial implications for:
- the path of the dollar,
- exchange rate effects of emerging market crises since 1995.
Implications and Analysis
- Recalculation of effective exchange rate indices based on new trade patterns is warranted because substantial changes have occurred in international trade relations since the earlier weight period (1989-91).
- Shifts in trade-weighted importance toward the United States and developing countries imply altered real and nominal effective exchange rate dynamics and different exchange-rate transmission of shocks, including crises dating back to 1995.
Content in this bundle
- _wp0599 - References