Eurostat, the statistical office of the European Union

Eurostat, C1, National accounts methodology. Indicators

Office address:
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5, Rue Alphonse Weicker
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Functional mail box: ESTAT-MIP@ec.europa.eu

The purpose of effective exchange rates (EERs) is to provide comparable measures of euro area countries' price and cost competitiveness, which depend not only on exchange rate movements but also on cost and price trends. Two types of EERs indices, the Nominal effective exchange rate (NEER) and the Real effective exchange rate (REER), are calculated against different groups of trading partners and for different currencies.

The Nominal Effective Exchange Rate (NEER) or, equivalently, the “trade-weighted currency index”, describes changes in the average value of a currency with reference to a given base period and a given group of foreign countries. It is calculated as a weighted geometric average of the bilateral exchange rates against the currencies of a panel of the most important trading partners, where a rise in the index means a strengthening of the currency.

The Real Effective Exchange Rate (REER) or, equivalently, the “relative price and cost indicator”,  results from deflating the NEER by consumer price index deflators. The REER measures a country's price or cost competitiveness relative to its principal competitors in international markets.

EERs are entirely based on official statistics (exchange rates, trade data, deflators). The selection of the specific statistical series used in its calculation (in particular the choice of deflator) and some of the modalities of their calculation (namely the choice of a country basket) depend on the analytic purpose of the indicators.

The MIP scoreboard indicator is the Real Effective Exchange Rate (42 trading partners, based on HICP/CPI), 3-year % change. The indicator is deflated by the consumer price indices relative to a panel of 42 countries.

In addition to the headline indicator, the following indicators are also published:

• Real effective exchange rate (euro area trading partners) – MIP auxiliary indicator
• Nominal effective exchange rate (42 trading partners)
• Nominal effective exchange rate (euro area trading partners)

Directorate General for Economic and Financial Affairs (DG ECFIN) is the data source.

DG ECFIN's methodology for calculating Effective Exchange Rates follows the conventional framework used by the majority of international EER data compilers: the BIS, the ECB, the IMF and the OECD. For more details see the Annex - attached to this document - and the DG ECFIN dedicated web section.

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The MIP scoreboard indicator is the percentage change over three years of the Real effective exchange rate (REER) based on consumer price index deflators relative to 42 trading partners. The calculation formula is: [[(REER_HICP_42)_t - (REER_HICP_42)_t-3] / (REER_HICP_42)_t-3]*100

The indicative thresholds are +/-5% for euro area and +/-11% for non-euro area countries.

Trading partners: the specific REER for the MIP is deflated by the consumer price indices relative to a panel of 42 countries. The panel of 42 countries includes: 27 EU Member States plus UK and 14 other industrial countries - Australia, Canada, United States, Japan, Norway, New Zealand, Mexico, Switzerland, Turkey, Russia, China, Brazil, South Korea and Hong Kong.

Double export weights are used to calculate REERs, reflecting not only competition in the home markets of the various competitors, but also competition in export markets elsewhere. Whatever basket of trade partners is used, the calculation of trade weights is performed on the exact corresponding bilateral trade matrix, and not a reduced matrix calculated for a larger group.

Regarding the frequency of weight matrix revisions: in order to capture changes in trading patterns, DG ECFIN opted for moving annual weights: for each year, the weight matrix based on trade data for the previous year is used; the results are chain-linked.

Exchange rates: the daily fixings collected and published by the ECB are used. As the currency unit used in EER calculations is the USD, the daily data quoted in EUR are first converted to USD rates, from which monthly and yearly averages are derived. For currencies not reported for the whole time range needed by the ECB, use is also made of the USD exchange rates published by Reuters.

Deflators: HICP data (index number series) collected and published by Eurostat are used. For countries not reported by Eurostat, national CPI data series collected and published by either the IMF (IFS) or the OECD (MEI) are used.

Trade data: in order to use a single consistent dataset, the selection of data on exports of goods published by the IMF (DoT database) seemed preferable. As far as EU Member States are concerned, the source for these IMF data is Eurostat's Comext database. For simplicity, consistency and data availability reasons, total trade in goods was chosen.

For more details see the Annex and the DG ECFIN dedicated web section.

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The MIP scoreboard presents national data for each EU Member State and for euro area (EA) and the European Union as a whole. EU and EA aggregates were added in 2023. 

Under the MIP domain annual time series are published. The lengths of series vary according to country, for details on time coverage follow the links: tipser10; tipser11; tipser12; tipser13; tipser20.

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The data are presented as 3 and 1 year % change and Index, 2015=100.

The reference period is the calendar year.

The indicator Real effective exchange rates is part of the Macroeconomic Imbalance Procedure (MIP) Scoreboard indicators, set up under Regulation (EU) No 1176/2011 of the European Parliament and of the Council.

DG ECFIN’s work on the REER, as far as it concerns the MIP, is discussed within the EPC’s LIME working group (Working Group on the Methodology to assess Lisbon related structural reforms).

DG-ECFIN calculates and provides the data.

DG ECFIN is a producer of “other statistics” in the sense of Commission decision of 17 September 2012 on Eurostat (2012/504/EU) and in this role subject to coordination and guidance by Eurostat according to articles 5(2) and 6(4) of the Decision.

The Regulation 2015/759 of 29 April 2015 amending Regulation (EC) No 223/2009 on European statistics of 11 March 2009 [recital 24 and Article 20(4)], stipulates the need to establish common principles and guidelines ensuring the confidentiality of data used for the production of European statistics and the access to those data.

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Effective Exchange Rates are published by DG ECFIN on a monthly basis, without an advance release announcement.

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The MIP Regulation stipulates that “the Commission shall make the set of indicators and the thresholds in the scoreboard public” (Art. 4, para. 6, Regulation (EU) No 1176/2011 of 16 November 2011 on the prevention and correction of macroeconomic imbalances) and that “the Commission shall update the values for the indicators on the scoreboard at least on an annual basis” (Art. 4, para. 8).

In line with the Community legal framework and the European Statistics Code of Practice Eurostat disseminates European statistics on Eurostat's website (see § 10 'Accessibility and clarity') respecting professional independence and in an objective, professional and transparent manner in which all users are treated equitably. The detailed arrangements are governed by the Eurostat protocol on impartial access to Eurostat data for users.

DG ECFIN publishes the relevant data on a dedicated web section.

MIP-related indicators are updated and released in accordance to the dissemination of the underlying statistics.

MIP REER: News releases on-line

The Real Effective Exchange Rate indicator is part of the MIP Scoreboard indicators used to identify emerging or persistent macroeconomic imbalances in EU countries. The Scoreboard is part of an annual exercise, where the first step is the compilation of an Alert Mechanism Report (AMR).

See data availability for the different tables: tipser10; tipser11; tipser12; tipser13; tipser20.

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DG ECFIN publishes REER data and related documentation on the “Price and Cost Competitiveness” dedicated web page, covering all data releases back to 1999.

For more details, see the Annex.

Eurostat's mission is to provide the European Union with a high-quality statistical information service - see: Eurostat quality framework.

Moreover, the statistics underlying the Scoreboard indicators are subject to a specific quality assurance framework developed within the MIP context.

The entire dataset is recalculated every quarter, as component series are frequently revised.

Data are collected from reliable sources applying high standards with regard to the methodology and ensuring high comparability.

The quality assurance framework for the Macroeconomic imbalance procedure (MIP) follows a three-level structure:

The first level assesses the reliability and comparability of MIP underlying statistics and addresses relevant quality issues; it also enhances the communication on quality assurance of MIP statistics towards the European Parliament and Council, policy makers and the public at large. This level draws on the information gathered in levels two and three (see below).

The second level consists of domain-specific quality reports produced by Eurostat and the ECB summarising the main findings for the euro area or the EU Member States. Reports assess the underlying compilation process and its robustness, describe its legal basis and evaluate whether the statistics are in line with international statistical standards.

The third level consists of national quality reports (self-assessments) produced by the institution compiling the national statistics. Most of these reports are voluntarily published by Members States on the CMFB’s website and their availability depends upon the statistical domain.

The Real effective exchange rate (42 trading partners) is one of the “Headline” indicators of the MIP Scoreboard, while the Real effective exchange rates, 3-year change (euro area trading partners) is an “Auxiliary” indicator. The MIP Scoreboard is used as an early warning system in the context of the macroeconomic surveillance of the EU Member States. The MIP Scoreboard consists of a set of fourteen indicators, covering the major sources of macroeconomic imbalances. The aim of the scoreboard is to trigger in-depth studies, which will do analyses to determine whether potential imbalances identified in the early-warning system are benign or problematic.

The REER based on consumer prices captures the drivers of persistent changes in price and cost competitiveness of each Member State relative to its major trading partners. This indicator accounts for broad price developments and thus casts a comprehensive picture of global 'price' pressure on domestic producers in a medium-term perspective. Since it is closely related to the terms-of-trade concept, this indicator also exemplifies the attractiveness of imports over domestic production. Hence, with its focus on exchange rates and prices, REER mainly assess price and cost competitiveness developments, and hardly account for several other aspects of competitiveness like product quality, overhead costs, or marketing efficiency.

In the economic literature, the REER has often been found to be a statistically significant predictor of the incidence of economic crises; and it is, thus, frequently considered among early warning indicators.

For consistency and communication reasons the REER statistics used in the context of the MIP are the same as the ones published by DG ECFIN for its macroeconomic forecast exercises and used in regular monitoring and analysis outside the MIP.

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Data are calculated for all countries starting 1994. Detailed information on data completeness is also provided in the Introduction of the Statistical annex of each Alert mechanism report. 

Figures are subject to changes due to updates of the basic data. Calculating EERs involves a certain degree of subjectivity by their very nature ("sui generis"), which requires conscious methodological choices to be made in the process: definition of the basket of trading partners, weighting scheme, etc. As a result, data vary slightly between different compilers: DG ECFIN, ECB, IMF, OECD, BIS. The only possible assessment is a comparison with series obtained through different calculation methods (external consistency – see § 15.3), where no dataset seems superior to any other.

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DG ECFIN's EER data are published on a monthly basis (covering both NEER and REER). Timeliness depends on availability of the basic data: around T+4 months after the reference period.

A delay may occur if basic data are not available.

Due to use of a base period index, caution must be used for any geographical comparison involving entities which may evolve over time. In terms of methodology, geographical comparability is reasonable.

Although data comparability over time can be considered as very high, methodological changes occur, with a limited effect on the overall pattern of REER indicators. Each time, recalculations under the new definitions are performed for the whole time series, preventing thus the development of breaks. Changes mostly result from the addition of new trading partners in the trade-weighted index, and/or new countries entering the euro area and EU aggregates.

DG ECFIN has carried out a comparison of monthly REER series published over the period 1999-2014 by the five main international providers of this type of data (namely, DG ECFIN, the ECB, the IMF, the OECD, and the BIS). Notwithstanding significant differences in approach (number and composition of trading partners, weighting methods) a remarkable degree of correlation was observed for every country, both in levels (index number series) as in year-on-year changes. A similar exercise, specifically related to the MIP, covering the last thirteen years showed a broad agreement (better than 95%) in the results based on these five data sources.

For more details see the Annex.

“Time” and back data consistency: Every EER release is based on the latest available data series from the underlying basic statistics: the complete dataset is recalculated every month. Any revision or correction in the underlying data is thus taken into account. Time consistency is ensured using geometric averages in all EER calculations.

Consistency across frequencies: Yearly moving weight matrices combined to chain-linking are used. Data for all frequencies are calculated individually, and not derived from each other. As the last period to which data for the subsequent year are linked is different for all frequencies (last month (y-1) for monthly series, last quarter (y-1) for quarterly series, or last year for annual series), yearly REER data cannot correctly be derived from monthly or quarterly REER data alone.

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The full data series for the entire reporting period is revised each month. Accumulated revisions to the source data, if any, are incorporated. None of the source statistics is subject to routine revisions. Trade statistics and consumer price indices can be revised for either replacement of provisional figures, correction of errors or introduction of changes to methodology. Exchange rates are not usually open for revision. Revisions might be a result of changes in methodology in particular in the case of addition of new countries in the compilation process.

Data are not marked as provisional but are subject to revision. Revisions are frequent, i.e. every month.

DG ECFIN calculates effective exchange rates. The source data underlying EERs are compiled by national statistical institutes and the European Central Bank. The compiling institutions derive their mandate for data collection from the relevant national legislation and from Regulation (EC) No 223/2009 of 11 March 2009 on European statistics, amended by Regulation 2015/759 of 29 April 2015. Moreover, they are bound by the ESS European Statistics Code of Practice or the ESCB Public Commitment.

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The mandate for compiling the REER indicator emanates from the MIP Regulation which gives the Commission the task to prepare the annual Alert Mechanism Report (Art. 3, para. 1). DG ECFIN’s work on the REER, as far as it concerns the MIP, is discussed within the EPC’s LIME group.

Data collection in the specific domains providing source data for the calculation of REER in the EU is regulated by legal acts. For price statistics, the central reference is Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonised indices of consumer prices; for trade statistics, the central references are Regulation (EC) No 638/2004 of 31 March 2004 on Community statistics relating to the trading of goods between Member States and Regulation (EC) No 471/2009 of 6 May 2009 on Community statistics relating to external trade with non-member countries.

Exchange rate statistics are compiled by the European Central Bank. Historical exchange rates are provided by the IFS (IMF) database.

Weights are derived using data on bilateral exports from the IMF DoT database and data on domestic production from national accounts.

Data can be checked with DG ECFIN.

The EU and euro area aggregates are calculated by taking each country's share of extra-EU or extra-EMU trade as weights. Double export weights are used to calculate NEER and REER, reflecting not only competition in the home markets of the various competitors, but also competition in export markets elsewhere. Note that the series for individual euro area countries continue beyond the establishment of the Monetary Union: their effective exchange rates will continue to vary because of differing trade patterns and cost or price trends.

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