Real Effective Exchange Rate (REER) is a measure of a country's currency value relative to a weighted average of other countries' currencies, adjusted for inflation. The REER index takes into account not only the bilateral exchange rates of a country's currency against its trading partners but also the relative price levels between the countries. The REER index is calculated by weighting the bilateral exchange rates of a country's currency against its trading partners based on the respective countries' trade flows with the country of interest.
The REER index is often used as an indicator of a country's international competitiveness, as it reflects the relative strength or weakness of a country's currency against its trading partners. A higher REER indicates that a country's exports are more expensive, making them less competitive in the global market, while a lower REER indicates that a country's exports are cheaper, making them more competitive.
Central banks and policymakers use the REER index to assess the impact of exchange rate changes on a country's economy, as well as to monitor and manage exchange rate policies. Investors and traders also use the REER index as a tool for analyzing and predicting currency movements and identifying trading opportunities.
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