Estimation of Asian Effective Exchange Rates: A Technical Note

Abstract

Discussion of exchange rate policy in Asia would benefit from appropriate measures of exchange rates on a multilateral basis. The purpose of this paper is to refine the construction of the effective exchange rates (EERs) for Asian economies, to make allowances for the role of Hong Kong SAR as an entrepôt and to reflect the fast-growing intra-regional trade. For the scenarios under consideration, it turns out that adjusting for re-export trade through Hong Kong SAR is generally more important in the determination of trade weights than updating the base year. The proposed refinements have important policy implications, particularly in estimating the relative sizes of currency blocs, should the region's exchange rate policies become more oriented to trade baskets than to bilateral dollar rates.

The evolving renminbi regime and implications for Asian currency stability

“…In any currency's index, weight is placed on a given partner currency to reflect not only the direct trade between the two economies but also their competition in third markets. Weights are updated regularly and indices calculated with contemporaneous data are chain-linked (Klau and Fung, 2006). Importantly for China, allowance is made for entrepot trade through Hong Kong (Fung et al, 2006).…”

“…Weights are updated regularly and indices calculated with contemporaneous data are chain-linked (Klau and Fung, 2006). Importantly for China, allowance is made for entrepot trade through Hong Kong (Fung et al, 2006). Without an adjustment for such trade, the weight on the HK dollar, and thus the US dollar, is too heavy while that on the yen, won and other neighbouring currencies is too light.…”

France, Greece, Italy, Portugal, and Spain -Competitiveness in the Southern Euro Area: Competitiveness In The Southern Euro Area

“…2 The concept of REER is the most commonly used measure of international competitiveness and is frequently used in policy and academic discussions. See Agenor (1995), Catao (2007), Chinn (2006), Fung and Klau (2006), Marsh and Tokarick (1996), Neary (2006), andRogoff (1996) for further references to the concepts of REER and real exchange rate.…”

Research on multiscale features and integrated forecasting of the Belt and Road exchange rate index

“…As for the currency basket, some studies note the policy objective of compiling exchange rate index should be considered: the stability of trade balance 5 is regarded as a policy objective of the monetary basket, including the impact of different export demand elasticity of a country on its main trade products, balance of payments and employment level; the policy objective of minimizing the fluctuation of export products is also the foundation of determining the optimal weight of the currency basket in the study of Edison and Vardal; 6 Yoshino et al 7 set the policy objective of the optimal weighting model of a basket of currencies as the stability of gross domestic product and current account. Besides, other factors should also be taken into account: Bayoumi et al 8 and Fung et al 9 introduced the third‐party market competition effect, and adopted the method of “double trade weight system” to give the weights of Basket Currencies after standardization, which became the basis for the International Monetary Fund and BIS to compile effective exchange rate indices of countries, and also became the basis for compiling effective exchange rate indices of countries. Exchange rate fluctuation 10,11 is also an important factor affecting foreign direct investment (FDI) and outward foreign direct investment (OFDI), so the importance of investment factors in the choice of currency basket cannot be ignored.…”