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Arithmetic versus geometric effective exchange rates

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Conclusion

The debate in recent years concerning the appropriate manner of defining effective exchange rates has largely ignored the question of the proper mathematical formulation to employ. As a result, in the literature the choice of mathematical formulation has often been a haphazard one, governed far more by custom than by a particular belief in the merit of the index chosen 1. Moreover, in many cases, the formulation employed has not been specified, apparently in the belief that the term“tradeweighted (effective) exchange rate” is sufficiently precise.

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Authors
  1. David A. Brodsky
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Brodsky, D.A. Arithmetic versus geometric effective exchange rates. Weltwirtschaftliches Archiv 118, 546–562 (1982). https://doi.org/10.1007/BF02706265

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