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A question of measurement: is the dollar rising or falling?

Author

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  • Cletus C. Coughlin
  • Patricia S. Pollard

Abstract

Trade-weighted exchange rate indexes that measure changes in the average foreign exchange value of the U. S. dollar produce different answers to how much the dollar has changed and, in some cases, even whether the value of the dollar has risen or fallen. After discussing the differences in constructing these indexes, Cletus C. Coughlin and Patricia S. Pollard examine some factors that might account for the contrasting views of changes in the dollar. Their analysis uses two indexes-one produced by the staff of the Board of Governors and the other by the Federal Reserve Bank of Dallas. These indexes differ in three aspects: the method used to calculate the trade weights, the base period for the trade weights, and the foreign currencies included. Their comparison reveals that the difference between the two indexes is driven primarily by the choice of the currencies.

Suggested Citation

  • Cletus C. Coughlin & Patricia S. Pollard, 1996. "A question of measurement: is the dollar rising or falling?," Review, Federal Reserve Bank of St. Louis, vol. 78(Jul), pages 3-18.
    • Handle: RePEc:fip:fedlrv:y:1996:i:jul:p:3-18:n:v.78no.5
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    Citations

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    Cited by:

    1. Roche, M.J. & Moore. M.J., 2002. "Volatile and persistent real exchange rates without the contrivance of sticky prices," Economics Department Working Paper Series n1160402, Department of Economics, National University of Ireland - Maynooth.
    2. Patricia S. Pollard & Cletus C. Coughlin, 2006. "Passthrough Estimates and the Choice of an Exchange Rate Index," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 535-553, September.
    3. Cletus C. Coughlin & Patricia S. Pollard, 2000. "Exchange rate pass-through in U. S. manufacturing: exchange rate index choice and asymmetry issues," Working Papers 2000-022, Federal Reserve Bank of St. Louis.
    4. Jerram C. Betts & Cletus C. Coughlin & Patricia S. Pollard, 1997. "To chain or not to chain trade-weighted exchange rate indexes," Working Papers 1996-010, Federal Reserve Bank of St. Louis.
    5. Cletus C. Coughlin & Patricia S. Pollard, 1998. "Constructing and using national and regional TWEXs: the case for chaining," Working Papers 1998-012, Federal Reserve Bank of St. Louis.
    6. Armando Ibarra, 1999. "Indíce Encadenado de la Tasa de Cambio Real Regional Ponderado por el Comercio de Exportación," Borradores de Economia 122, Banco de la Republica de Colombia.

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