The Dollar's Effective Exchange Rate: Assessing the Impact of Alternative Weighting Schemes
Mack Ott compares the effect of varying the weighting scheme in an effective exchange rate of the dollar against the 10 leading industrial economy currencies. Ott finds that several alternatively weighted effective exchange rates using the same 10 currencies yield closely similar results when used in an export equation. This somewhat surprising outcome implies that the relative importance of the weighting schemes used to derive effective exchange rate indexes needs to be more thoroughly investigated.