Global Value Chains and Effective Exchange Rates at the Country-Sector LevelNikhil Patel, Zhi Wang, and Shang-Jin WeiNBER Working Paper No. 20236June 2014JEL No. F1,F3
ABSTRACTThe real effective exchange rate (REER) is one of the most cited statistical constructs in internationalmacroeconomics. With the rising importance of offshoring and outsourcing, the standard measuresare increasingly flawed. In addition, because different sectors within a country may participate in internationalproduction sharing at different stages, sector level variations are also important. We develop a theoreticalframework to compute REER at both the sector and country levels. It nests the existing measures inthe literature and addresses their shortcomings. As an application, we exploit the recently availableWorld Input-Output Database (WIOD) to study the properties of the new measures of the REER for40 countries, 35 sectors, over 1995-2011.