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What is the Real Effective Exchange Rate (REER)?

The real effective exchange rate (REER) is a measure of the value of a country’s currency relative to a basket of other currencies, adjusted for differences in price levels between countries. It is calculated by dividing the value of a basket of goods and services in the domestic currency by the value of the same basket in a foreign currency, and then adjusting for changes in the price levels of the two countries over time.

The REER can affect the common man in a number of ways. For example, if a country’s REER increases, it means that its currency has become stronger relative to other currencies. This can make exports from the country more expensive to foreign buyers, which could lead to a decline in demand for those exports. This could result in job losses or wage cuts in industries that rely heavily on exports.

On the other hand, if a country’s REER decreases, it means that its currency has become weaker relative to other currencies. This can make imports into the country cheaper, which could lead to an increase in demand for imported goods. This could benefit consumers by providing them with more affordable products, but it could also lead to job losses in domestic industries that compete with imported goods.

In general, changes in the REER can affect the common man by influencing the prices of goods and services, the availability of jobs, and the overall health of the domestic economy.

This page was last updated on January 2, 2023.