What is the real effective exchange rate?
The actual effective exchange rate is a weighted diameter of the value of the Earth's currency due to the baskets of other main currencies, adapted for the differences in inflation. A real effective exchange rate is often used as a scale of competitiveness of the country's exports. The real effective exchange rate is best understood by exploring how it differs from other types of exchange rates. What international trade allows is the ability to convert one currency into another through a exchange rate. As with most problems in macroeconomics, it is common to adjust the variables for the effects of inflation, and with a exchange rate provides a real exchange rate. This is determined by multiplying the exchange rate by the ratio of domestic price level to the foreign price level. The real exchange rate takes into account changes in the purchasing power of every currency due to inflation.
in the real world of the country do not only have one business partner, so AiKOlives can be useful individual exchange courses and real exchange rates between land couples, there are times when you could know the value of the country's currency in relation to all its traders. The effective exchange rate stipulates that the information of the Earth's exchange rate on the average of other currencies. The weight assigned to every currency usually, but not always, is determined by the volume of trade, with the most important business partners getting higher weight.
The actual exchange rate of TIVE regulates the nominal exchange rate in both ways: accounting of a world where countries have more than one business partner and adapt to inflation. The calculation of the actual efficient exchange rate begins by accepting the country's nominal exchange rate for each business partner and multiplying the domestic ratio to foreign price levels, resulting in the collection of real exchange courses. Then the weighted diameter of real exchange courses is calculated using the annual value of trade with each country or region as a weight. Usually with pConverted to the index using the base period.