Revisiting the effective exchange rates of the euro

Abstract

This paper discusses in detail methodological issues in the construction of nominal and real effective exchange rate indicators based on the methodology used by the European Central Bank (ECB). Taking economic theory and data constraints into account, it presents the options available for constructing nominal and real effective exchange rates and describes how this is implemented in practice based on the example of the euro. 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 selection of trading partners, and the choice of deflators for constructing real effective exchange rate indices. It also describes how the concept of real effective exchange rates of the euro can be extended to consistent harmonised measures of competitiveness of euro area Member States. It finally shows how the available indicators can be applied in analysing exchange rate and competitiveness developments of the euro area as a whole or individual Member States.

Managers’ research education, the use of FX derivatives and corporate speculation

“…We then construct industryspecific exchange rates (for the 17 industry sectors already mentioned above) based on each industry sector's exports and imports, to best capture different trade patterns among the industry sectors. These calculations are based on Schmitz et al (2012), and include Germany's 25 major trading partner countries (see Klau and Fung, 2006) which account for direct bilateral trade and third-market competition (see Turner and Van't dack, 1993). We obtain bilateral exchange rates from Thomson Reuters Datastream, analyst forecasts from Bloomberg and industry-specific trade data from the OECD.…”

Shedding Light on Price‐ and Non‐price‐competitiveness Determinants of Foreign Trade in the Four Largest Euro‐area Countries

“…The price‐competitiveness indicators employed in this paper are sourced from Banca d'Italia and ECB. For a full description of the underlying methodology we refer, respectively, to Felettigh et al () and Schmitz et al (). In this paper we briefly outline how the weights are computed, before moving on to discuss the alternative deflators employed.…”

The Euro Effect on Eurozone Exports

“…First of all, the high relevance of the real effective exchange rate as a measure of competitiveness is reflected by its inclusion in the scoreboard of the European Union Macroeconomic Imbalance Procedure that was adopted in December 2011 (Schmitz, De Clercq, Fidora, Lauro, & Pinheiro, 2012). Secondly, the deterioration of the Eurozone competitiveness because of the single currency is in the center of the debate.…”