Trade-Weighted Measure Of Nominal Effective Exchange Rates

1302 Words 6 Pages
\textbf{Trade-wighted measure of exchange rates volatility}: The trade-weighted exchange rates, commonly known as Nominal Effective Exchange Rates (NEER), is the geometric weighted average of a basket of bilateral exchange rates (Klau and Fung 2006). Real EER (REER) is the nominal EER adjusted with the respective relative price index. Here the weights are based on manufacturing trade flows including both bilateral trade and third-market competition by double-weighting. The BIS EER calculation is performed for EER basket of economy. Suppose there are j number of countries in the BIS EER basket and the weight the BIS EER places on each economy is indexed by i. In addition, suppose there are k foreign markets and h foreign producers. Economy j …show more content…
dollar (specifically number of local currencies per U.S. dollar) for each country in the sample. Here I use nominal exchange rates that are available in the International Financial Statistics database of IMF, and these exchange rates data are available in the IMF website. Using these monthly IMF NER data, I calculate rate of monthly appreciation or depreciation (\%change) of local currency against U.S. …show more content…
and Std. Dev. Diff.}: Mean Diff is the difference in average wages paid in the firms serving both domestic and export markets and the firms serving only domestic market. To construct this variable, I first find the economy wide mean of the average wages paid in domestic firms and exporting firms, then I subtract the mean of average wages of domestic firms from the mean of average wages of exporting firms. Thus, a positive number of Mean Diff. indicates that the mean wage of all workers employed in exporting firms is higher that the mean wage of all firms employed in the firms serving only domestic markets, and vice-versa. Analogously, Std. Dev. Diff. is the difference of standard deviations of average wages of workers in exporting firms and workers in domestic firms. A positive value of Std. Dev. Diff. shows that the variation in wages of exporting firms is larger than the variation in wages of domestic firms, and vice-versa.\\ \textbf{GDP and World\_GDP}: GDP is the Gross Domestic Product per capita of each country and World\_GDP is the average of Gross Domestic Product per capita of the all countries for which data is available. These variables are measured in constant 2010 U.S. dollars. Data on both of these variables and their lags are collected from World Development Indicator database of World

Related Documents