There are substantial benefits from having an indexed unit of account for denominating bonds, contracting, and for quoting commodity prices. A new real effective exchange rate (REER) index is derived using GDP weights and an implicit world price index obtained incidental to the derivation of the indexed unit of account. In a prototype exports function estimation, this new index beats most of the other published real effective exchange rate indices. The superior performance is probably due to the fact that with globalization and production fragmentation trade weights have become increasingly misleading because of the prevalence of re-exports and even re-re-exports.
A proposed international unit of account : implications for financial markets, commodity markets, and researchCentre for Public Policy Studies : CPPS Working Paper Series
Document TypePaper Series
Citation InformationHo, L. S. (2009). A proposed international unit of account: Implications for financial markets, commodity markets, and research (CPPS Working Paper Series no.194). Retrieved from Lingnan University website: http://commons.ln.edu.hk/cppswp/91/