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May 1987, 
Vol. 69, No. 5
Posted 1987-05-01

Do the New Exchange Rate Indexes Offer Better Answers to Old Questions?

by Dallas S. Batten and Michael T. Belongia

Dallas S. Batten and Michael T. Belongia examine several of these recently introduced exchange rate indexes. They find that the newer indexes performed no better than the older measures in explaining U.S. trade flows during the floating rate period. In fact, the traditional, narrower indexes outperformed the newer indexes in explaining the flow of U.S. non-petroleum imports. Hence, the authors conclude that the new exchange rate indexes do not solve the current puzzle surrounding the persistence of the U.S. external deficit.