G-Cubed Weights for effective exchange rates
Table of contents
Each region has a nominal effective exchange rate, NEER(region) and a real effective exchange rate, REER(region).
The nominal effective exchange rate is a weighted average of the US dollar nominal exchange rates, EXCH(region). It can be interpreted as the number of effective nominal currency units that can be purchased with a single local nominal currency unit for the region of interest.
The real effective exchange rate is a weighted average of the US dollar nominal exchange rates, REXC(region). It can be interpreted as the number of effective real currency units that can be purchased with a single real local currency unit for the region of interest.
The trade weights are constant and based on bilateral imports data in the calibration year (see how the calibration year is specified in the model configuration). Specifically, the weights are calculated from the total imports by each region from each other region. The weight in the effective exchange rate for region i on the exchange rate for region j is the total value of imports of region i from region j divided by the total imports of region i from all other regions.
The weights are named eer_weight in the G-Cubed model and are used in the equations for NEER and REER variables.
The eer_weight parameter dataframe has a row for each region that describes the weights for that region. The columns correspond to the region that the corresponding weight is applied to.