Definition

The nominal effective exchange rate indices are calculated by comparing, for each country, the change in its own exchange rate against the US dollar to a weighted average of changes in its competitors' exchange rates, also against the US dollar. Changes in the competitor exchange rates are weighted using a matrix measuring the importance of bilateral trade flows in the current year.

The two indicators of real effective exchange rates shown here, relative consumer price indices and relative unit labour costs in manufacturing, take into account not only changes in market exchange rates but also variations in relative prices using, respectively, consumer prices and unit labour costs in manufacturing.

The change in a country's relative consumer prices between two years is obtained by comparing the change in the country's consumer price index converted into US dollars at market exchange rates to a weighted average of changes in its competitors' consumer price indices, also expressed in US dollars. The weighted average of competitors' prices is based on a matrix for the current year expressing the importance of bilateral trade. Changes in the index of relative unit labour costs in manufacturing are calculated in the same way.

A rise in the indices represents a deterioration in that country's competitiveness. Note that the indices only show changes in the international competitiveness of each country over time. Differences between countries in the levels of the indices have no significance.

For more statistics on economic, environmental and social issues visit online the OECD Factbook 2010.