Effective Exchange Rate Indices for Palestine

Abstract

Effective exchange rate indices (EER) are weighted averages of bilateral exchange rate indices and therefore provide a more general view of a country’s stance in the foreign exchange markets. Several kinds of EER can be calculated according to the purpose of analysis for which they can be used. Two main broad categories can be distinguished: - Nominal effective exchange rate indices (NEER) provide a weighted average of a country’s nominal bilateral exchange rates, indexed on a chosen base year; - Real effective exchange rates indices (REER) correct the NEER for relative price developments. National and international organizations calculate for each of these categories different kinds of EER according to different methodologies. The IMF calculates different versions of EER for its member countries1 , according to different methods.