Effective exchange rates
The BIS effective exchange rates data set covers long time series on nominal and real effective exchange rates. They can serve as a measure of international competitiveness, components of financial conditions indices or as a gauge of the transmission of external shocks.
The broad effective exchange rate indices cover 64 economies. Narrow indices include 26 and 27 economies for the nominal and real indices, respectively. Nominal effective exchange rates (NEER) are calculated as geometric trade-weighted averages of bilateral exchange rates. Real effective exchange rates (REER) are derived by adjusting the NEER by relative consumer prices.
Specifically, changes in the REER take into account both nominal exchange rate developments and the inflation differential against a basket of trading partners. An increase in NEER indicates an appreciation in nominal terms, whereas an increase in REER corresponds to an appreciation in real terms.
The weights used in the calculations of the effective exchange rates are derived from manufacturing trade flows. They capture both direct bilateral trade and third-market competition by double-weighting. To account for changes in trade over time, the weighting pattern is time-varying on a three-year basis. For instance, the effective exchange rates index for 2009 is calculated using the weights which refer to the period from 2008 to 2010. The weights of 1990-92 are applied to data prior to 1990, while the most recent set of weights is also used to calculate effective exchange rates for the latest period. Whenever possible, the BIS uses published US dollar exchange rates and consumer prices as inputs for the effective exchange rates.
Research and publications
The BIS regularly seeks to enhance its statistical offerings to support monetary and financial stability analysis, in close coordination with central banks and other national authorities and international organisations. The exposure of economies to foreign currency risk is one potential source of vulnerability that has received increased attention in recent years, and the relevant data gaps are being addressed in the second phase of the Data Gaps Initiative (DGI) endorsed by the G20 (BIS-FSB-IMF (2015), FSB-IMF (2017)). Concurrently with this issue of the Quarterly Review, the BIS is expanding the data it publishes on exchange rates, on the currency composition of cross-border positions and on ...
EER indices are calculated as the geometric weighted average of a basket of bilateral exchange rates. Real EER are the nominal EER indices adjusted with the corresponding relative consumer prices. They are typically used as a component of financial or monetary conditions, as an indicator of international price competitiveness and as a gauge for the transmission of external shocks. For example, an increase in the real indices indicates an appreciation, and hence, a decrease in international price competitiveness.
The coverage of the data set has been gradually expanded from 52 to 64 economies in 2023. In April 2019, the BIS excluded the currency of Venezuela from the broad basket indices.
The weights are derived from manufacturing trade flows and capture both direct bilateral trade and third-market competition by double-weighting. For more details, see "The new BIS effective exchange rate indices", BIS Quarterly Review, March 2006.
To accommodate rapidly changing trade data, the BIS adopts time-varying weights in the EER calculations. More specifically, it assigns the three-year average trade weights of 1993-95, 1996-98, 1999-2001, 2002-04, 2005-07, 2008-10, 2011-13, 2014-16 and 2017-19 to the corresponding periods, and then constructs chain-linked indices. This last set of weights is also used to calculate EERs for the latest period until the next set of three-year trade data becomes fully available.
The weights of 1990-92 are applied to data prior to 1990.
The EER indices for euro area member countries are computed based on the legacy currencies prior to the adoption of the euro and the euro afterwards. EER indices for euro area member countries take intra-euro area trade into account, while the index for the euro area as an aggregate excludes intra-euro area trade.