Trade-Weight Methodology
The first question for any nation is how should an index be constructed to reflect imports and exports with trading partners and who should be included? Also, how should competitiveness of nations and prices be reflected? Should a nation target inflation, prices, exchange rates, reserves, interest rates, or none of the above? Central banks first constructed nation weights that included trading partners.
Each nation receives a share of its value to trade within the index. Some nations use trade shares, others utilize a percentage. Some nations fix their weights; others use a chained-link index. Some nations report an official index and quantify that index against a broader list of cross rates within the official index ...
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