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Computation of the Real Effective Exchange Rate (REER) using the Bank for International Settlement (BIS) Methodology

Author

Listed:
  • M. Nakorji

    (Central Bank of Nigeria)

  • E. Udeaja

    (Central Bank of Nigeria)

  • F. Ismail

    (Central Bank of Nigeria)

  • S. Zimboh

    (Central Bank of Nigeria)

  • T. Obiezue

    (Central Bank of Nigeria)

  • O. Asuzu

    (Central Bank of Nigeria)

Abstract

The importance of REER and its computation prompted this study to re-estimate the REER for Nigeria, using the Bank for International Settlement (BIS) methodology. The methodology incorporates recent developments in global trade by employing timevarying trade weighting patterns, highlights the effect of third market competitors, and provides a more comprehensive approach to capturing the effects of bilateral exchange rates through the inclusion of double export weights. The method employed the weighing scheme adopted by Turner and Van’t dack (1993) which has its theoretical underpinnings in Armington (1969). The data utilised was monthly series from October 2011 to December 2016 with 2010 as the base year. The results revealed that the computation method adopted mimics that of the International Monetary Fund (IMF), except that the IMF defines exchange rates using direct quotation, while Nigeria uses indirect quotation. The paper identified data constraints both in respect to quality and availability as a challenge for the computation of REER index for Nigeria using the BIS methodology. The former methodology has become obsolete given changes in the global economy and in the composition of Nigeria’s major trading partners.

Suggested Citation

  • M. Nakorji & E. Udeaja & F. Ismail & S. Zimboh & T. Obiezue & O. Asuzu, 2019. "Computation of the Real Effective Exchange Rate (REER) using the Bank for International Settlement (BIS) Methodology," Economic and Financial Review, Central Bank of Nigeria, vol. 57(3), August.
    • Handle: RePEc:ava:cbnefr:v:57:y:2019:i:3:a:4:p:
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    References listed on IDEAS

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    1. Marc Klau & San Sau Fung, 2006. "The new BIS effective exchange rate indices," BIS Quarterly Review, Bank for International Settlements, March.
    2. Nilsson, Kristian, 1999. "Alternative Measures of the Swedish Real Effective Exchange Rate," Working Papers 68, National Institute of Economic Research.
    3. Robert Lafrance & Patrick Osakwe & Pierre St-Amant, 1998. "Evaluating Alternative Measures of the Real Effective Exchange Rate," Staff Working Papers 98-20, Bank of Canada.
    4. Reza Siregar, 2011. "The Concepts of Equilibrium Exchange Rate: A Survey of Literature," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp81, April.
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