BIS paper offers improved real exchange rate calculation
Authors find models used to calculate real effective exchange rate do not properly account for global value chains
Existing models for calculating the real effective exchange rate (Reer) fail to account fully for global value chains, according to a working paper published by the Bank for International Settlements on May 8.
Nikhil Patel, Zhi Wang and Shang-Jin Wei propose a model that captures global value chains and differences across sectors in their paper, Global value chains and effective exchange rates at the country-sector level.
Current models tend to assume that only final – not intermediate – goods
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