Macroeconomics, 2nd Edition by Pearson

154

MACROECONOMICS

NOTES

1.

This is achieved statistically by calculating a weighted

average of a country’s bilateral exchange rates, using trade

shares as weights. This trade weighted exchange rate is

called the nominal effective exchange rate (NEER).

2.

P

* is the consumer price index (CPI) for urban consumers

in the United States, and

P

is the CPI for urban non-manual

employees in India. The real exchange rate is indexed with

the base year 1993 value set equal to the nominal exchange

rate that year for comparison purposes. The trade-weighted

real exchange rate (REER) and nominal exchange rates (NEER)

for India depict a similar ...