What Is the Real Effective Exchange Rate?
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The real effective exchange rate, or REER, summarizes a country’s exchange rate against multiple trading partners while adjusting for relative prices.
In Short
Unlike a simple bilateral exchange rate, REER measures whether a currency is strong or weak in real terms against a basket of trading partners.
Why It Is Useful
It is useful when judging export competitiveness or whether a currency looks broadly overvalued or undervalued.
How To Read It
A higher REER is not always ‘bad’ and a lower REER is not always ‘good.’ The interpretation depends on price dynamics and trade-partner composition.