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REER and NEER

REER and NEER. Starter. What is it?. REER. Real Effective Exchange Rate (REER) – the inflation adjusted exchange rate of one currency against a basket of currencies, weighted according to trade with each country . NEER.

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REER and NEER

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  1. REER and NEER

  2. Starter • What is it?

  3. REER • Real Effective Exchange Rate (REER) – the inflation adjusted exchange rate of one currency against a basket of currencies, weighted according to trade with each country

  4. NEER • Nominal Effective Exchange Rate (NEER) – the exchange rate of one currency against a basket of currencies, weighted according to trade with each country (not adjusted for inflation)

  5. Task • Explain the difference between the NEER and the REER (4) • Explain the difference between ‘internal devaluation’ and ‘external devaluation’ (4)

  6. Explain this… • Unlike Latvia, Iceland has a floating exchange rate. Iceland’s nominal effective exchange rate (NEER) index depreciated by almost 50% after the end of 2007. In comparison, Latvia’s NEER was broadly unchanged (see Fig. 4.2). • Latvia was more dependent on a change in its real effective exchange rate (REER), which depreciated by around 20% measured in terms of unit labour costs. • This compares to a 45% depreciation in Iceland’s REER based on changes in unit labour costs.

  7. Plenary • What are they?

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