What is real effective exchange rate (REER)? – IMF DATA Help (2024)

FAQs

What is real effective exchange rate (REER)? – IMF DATA Help? ›

REER is the real effective exchange rate (a measure of the value of a currency against a weighted average of several foreign currencies) divided by a price deflator or index of costs.

The real exchange rate is the cost of a particular product or asset in a different currency. The real effective exchange rate is the relative rate of exchange with respect to a basket of trade currencies.

Consistent with the CA gap, the IMF staff assesses the REER gap to be in the range of –1.3 to 6.6 percent, with a midpoint of 2.6 percent. Background. The financial account recorded net cumulative outflows in 2022, reflecting the CA surplus.

The IMF was created to help stabilize exchange rates in the fixed exchange rate system. In particular, member countries contribute reserves to the IMF, which is then enabled to lend money to countries suffering balance of payments problems.

Real effective exchange rate is the nominal effective exchange rate (a measure of the value of a currency against a weighted average of several foreign currencies) divided by a price deflator or index of costs. International Monetary Fund, International Financial Statistics.

By contrast, the real exchange rate R is defined as the ratio of the price level abroad and the domestic price level, where the foreign price level is converted into domestic currency units via the current nominal exchange rate.

The member countries of the International Monetary Fund (IMF) undertake to collaborate with each other and the IMF to assure orderly exchange arrangements and promote a stable system of exchange rates, recognizing that the essential purpose of the international monetary system is to facilitate the exchange of goods, ...

In this respect, REER values above 100 signify a downward trend in the country's competitiveness relative to the base period, whereas an REER below 100 means rising competitiveness of the country relative to the base period.

It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being. The IMF is governed by and accountable to its member countries.

Does the IMF deal with exchange rates? ›

Role of the IMF

Exchange rate develop- ments are also analyzed in the semi-annual World Economic Outlook, which provides the basic analytical framework for the IMF's re- view of the world economy and the exchange system as a whole and which is discussed by the Executive Board.

If the German price is 2.5 euros and the U.S. price is $3.40, then (1.36) X (2.5) ÷ 3.40 yields an RER of 1. But if the German price were 3 euros and the U.S. price $3.40, the RER would be 1.36 X 3 ÷ 3.40, for an RER of 1.2.

A good exchange rate means you get the most value for your money during a currency transfer. To determine what's “good,” you must understand what's normal by checking the mid-market rate. This term refers to the midpoint between the buy and sell prices of any two currencies across different vendors and banks.

1. Kuwaiti dinar. The Kuwaiti dinar (KWD) is the world's strongest currency, and this is for a number of reasons. For starters, Kuwait has one of the largest oil reserves in the world.

Real exchange rate: The rate at which a person can trade the goods and services of one country for the goods and services of another.

Japan continues to be a popular choice, but Vietnam and South Korea stand as solid alternatives among numerous countries in Asia with favorable exchange rates for the US dollar. Closely following in value are South American countries: Argentina and Chile are among those offering the biggest luxury bang.

Neer is a weighted index that reflects the trade of India with other countries. The weight is greater for countries with which India trades more. Reer is again a weighted index which also includes domestic inflation in various economies.

The real exchange rate tracks the evolution over time of the price of a represenative basket of goods abroad in terms of baskets of goods at home. When the price of a basket of goods abroad is the same as the price of a basket of goods at home. we say that purchasing power parity holds.

A nominal exchange rate measures the value of one country's currency in terms of another country's currency. A real exchange rate measures the price of domestic goods in terms of foreign goods.