Euro Effective Exchange Rate Index

The Euro Effective Exchange Rate Index (Euro EER Index, also known as Euro Trade Weighted Index) is a key figure that compares the value of the Euro using a currency basket made up of different currencies. The index is the trade-weighted average against these currencies. It was first published in 1999 by the European Central Bank (ECB).

concept

The Euro Effective Exchange Rate Index (Euro EER Index) represents the ratio of different currencies in comparison to the Euro . All currencies are expressed in the units of measure of the currency per Euro. The European Central Bank (ECB) calculates the effective exchange rates in the index for three groups:

• a narrow group (EER-12 index),
• a group of 20 member countries (EER-20 index), consisting of the EER-12 countries, plus China and the seven non- euro area EU member states
• a broad group (EER-40 index) of trading partners consisting of the EER-20 countries plus 20 additional relevant trading partners

The ECB publishes historical time series for the EER-12 index since 1985 (daily rates), the EER-20 index since 1993 (daily rates) and the EER-40 index since 1995 (monthly rates).

The strength or weakness of the euro can be read from the course of the trade-weighted EER index. A rising index means an appreciation of the euro against the currencies in the currency basket , a falling index means a depreciation.

Connections to commodity indices are recognizable. A rising EER index means a tendency towards falling commodity prices. This is especially true for agricultural commodities and the price of oil . Even the precious metal prices ( gold price , silver price ) correlate with the index.

Comparable to the trade-weighted Euro Effective Exchange Rate Index is the arithmetically weighted Euro Currency Index (EUR_I), which compares the value of the Euro using a currency basket of four currencies.

The geometrically weighted US Dollar Index (USDX) and the trade-weighted Trade Weighted US Dollar Index of the US Federal Reserve (FED) use a calculation method similar to that of the EER Index .

calculation

The European Central Bank (ECB) determines the weights of the individual partner countries based on the proportions of the finished products as defined in the Standard International Trade Classification (SITC) .

For the weights, the ECB uses the values ​​from exports and imports, without taking into account trade within the euro area. The imports are weighted according to the simple share of the partner countries in total imports into the euro area. Exports, on the other hand, are weighted twice because of the so-called “third market effects”. This captures the competition between European exporters in foreign markets versus domestic producers and exporters from third countries. The weightings of the individual trading partners by the European Central Bank are available on its website.

The weights used reflect the share of the individual partner countries in trade in the euro zone. The data prior to 1999 are based on the revised trade weights for the period 1995–1997. The total series is calculated by concatenating the indices based on the revised weights for the periods 1995–1997, 1998–2000, 2001–2003, and 2004–2006.

As long as there are no high and diverging inflation rates between individual countries, changes in the nominal effective exchange rates can be regarded as identical to the real effective exchange rates. Otherwise, however, the two sizes fall apart. In this case, nominal effective exchange rate changes do not provide any useful pointers for assessing changes in international competition.

Nominal effective exchange rates ( nominal effective exchange rate (NEER) ) or nominal multilateral exchange rates are weighted averages of the bilateral exchange rates against the currencies of the most important trading partners. The determination of this effective exchange rate neglects the foreign price level of all countries in the currency basket.

When calculating the nominal multilateral exchange rate, it should be noted that the bilateral exchange rates are used uniformly in the quantity or price quotation . Depending on the quotations used, there is a nominal effective exchange rate.

${\displaystyle NEER=E_{1}^{g_{1}}\cdot E_{2}^{g_{2}}\cdot E_{3}^{g_{3}}\cdot \ldots \cdot E_{n-1}^{g_{n-1}}=\prod _{i=1}^{n-1}E_{i}^{g_{i}}}$

${\displaystyle {\text{mit}}\quad g_{i}>0\quad {\text{und}}\quad \sum _{i=1}^{n-1}g_{i}=1}$

${\displaystyle E_{i}}$	= nominal bilateral exchange rate of the domestic currency to the respective foreign currency ${\displaystyle i}$
${\displaystyle g_{i}}$	= Weight of the respective country
${\displaystyle NEER}$	= nominal multilateral exchange rate

composition

The three groups of the Euro Effective Exchange Rate Index contain the following currencies.

Weighting in percent

rank	currency	ISO 4217 code	EER-12	EER-20	EER-40
1	U.S. dollar	USD	27.1	19.2	15.4
2	British pound	GBP	25.1	17.8	14.3
3	Japanese yen	JPY	11.6	8.3	6.6
4th	Swiss franc	CHF	8.6	6.5	5.2
5	Swedish crown	SEK	7.0	5.0	4.0
6th	South Korean won	KRW	5.5	3.9	3.2
7th	Danish crown	DKK	3.8	2.7	2.2
8th	Hong Kong dollars	HKD	2.5	1.8	1.4
9	Canadian dollar	CAD	2.5	1.8	1.5
10	Singapore dollar	SGD	2.4	1.7	1.4
11	Norwegian krone	NOK	1.9	1.3	1.1
12	Australian dollar	AUD	1.3	0.9	0.8
	EER-12		100.0	70.9	57.0
13	Chinese renminbi	CNY		14.1	11.3
14th	Polish zloty	PLN		4.8	3.9
15th	Czech crown	CZK		4.2	3.4
16	Hungarian forint	HOOF		3.2	2.6
17th	Romanian leu	RON		1.7	1.4
18th	Bulgarian lev	BGN		0.5	0.4
19th	Lithuanian litas	LTL		0.4	0.3
20th	Latvian lats	LVL		0.2	0.2
	EER-20			29.1	23.4
21st	Turkish lira	TRY			3.1
22nd	Russian ruble	RUB			2.9
23	Taiwan dollars	TWD			1.9
24	Indian Rupee	INR			1.8
25th	Brazilian real	BRL			1.2
26th	Mexican peso	MXN			1.2
27	Malaysian ringgit	MYR			1.1
28	South African rand	ZAR			1.0
29	Thai baht	THB			1.0
30th	Israeli shekel	ILS			0.7
31	Indonesian rupiah	IDR			0.6
32	Moroccan dirham	MAD			0.6
33	Croatian kuna	HRK			0.5
34	Algerian dinar	DZD			0.4
35	Chilean peso	CLP			0.4
36	Philippine peso	PHP			0.4
37	Argentine peso	ARS			0.3
38	Venezuelan bolívar	VEF			0.2
39	Icelandic krona	ISK			0.1
40	New Zealand dollar	NZD			0.1
	EER-40				19.6

history

Historical overview

The EER-20 index started on February 12, 1999 with a base value of 100 points. The recalculation was based on the data of the European Currency Unit (ECU) up to June 25, 1993.

On July 30, 1993, the arithmetical index was 90.48 points. Over the next five years the ECU rose against most currencies. On October 5, 1998, the index stood at 106.55 points, 17.8 percent higher. With the introduction of the euro on January 1, 1999, a short-term downward movement of the European common currency began. On October 26, 2000, the index hit an all-time low of 81.16 points. Since October 1998 the loss is 23.8 percent.

From 2000 onwards, the euro rose against most currencies. On April 23, 2008 the index stood at 113.42 points. The international financial crisis , which originated in the US real estate crisis in the summer of 2007, led to a slight decline in the effective exchange rate of the euro. On October 28, 2008 a value of 101.68 points was determined. In the following two months the euro recovered from its lows. On December 18, 2008, the index marked an all-time high of 114.35 points. The increase since the all-time low of October 2000 is 40.9 percent.

A budget crisis in several member states of the euro zone led to the outbreak of the euro crisis in 2010 . Greece is particularly affected (see Greek sovereign debt crisis from 2010 ), but also other countries such as Ireland , Spain , Italy and Portugal . The weakness of the euro against almost all world currencies caused the index to drop to 98.98 points by June 7, 2010. Compared to the all-time high of December 2008, this corresponds to a decrease of 13.4 percent. In the months that followed, the European Stabilization Mechanism was developed, which provides for mutual aid measures in an emergency in order to avoid the national bankruptcy of member states. By May 4, 2011, the index rose to a value of 107.28 points.

As the sovereign debt crisis intensified in the euro area, the EER-20 index fell to 94.41 points on July 24, 2012, its lowest level since December 24, 2002. The loss since the all-time high on December 18, 2008 is 17.4 percent .

Annual development

The table shows the annual high, low and closing levels of the nominal EER-20 index calculated back to 1993.

year	Peak	Lowest point	Final stand
1993	95.78	90.48	92.14
1994	101.55	93.09	99.78
1995	106.45	99.52	105.52
1996	105.98	102.23	103.37
1997	103.57	91.94	98.93
1998	106.55	95.55	102.51
1999	103.11	90.79	90.79
2000	93.09	81.16	88.91
2001	91.00	83.95	86.79
2002	95.09	85.71	95.09
2003	106.53	94.58	106.53
2004	108.26	102.00	108.10
2005	107.67	99.87	100.22
2006	104.88	99.75	104.43
2007	110.05	103.36	109.74
2008	114.35	101.68	111.54
2009	113.97	106.83	110.83
2010	110.96	98.98	101.70
2011	107.28	99.57	99.57
2012	100.81	94.41	99.16
2013	104.33	100.01	104.06
2014¹	104.78	98.25	98.25
2015²	95.23	88.74	93.66

¹ December 31, 2014
² September 21, 2015

Web links

• EER-20 index at the ECB

Individual evidence

1. ↑ Detailed information on the calculation of effective exchange rates. European Central Bank
2. ↑ All glossary entries: Nominal effective exchange rate. European Central Bank
3. ↑ Rasul Shams: Exchange Rate Theory and Policy: An Introduction . Oldenbourg Wissenschaftsverlag, Munich 1985, ISBN 3-486-29961-1 , p. 10
4. ↑ External trade. European Central Bank
5. ↑ Historical data. European Central Bank