Real Effective Exchange Rate (REER)
The weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index. Investopedia Says:
This exchange rate is used to determine an individual country's currency value relative to the other major currencies in the index, as adjusted for the effects of inflation. All currencies within the said index are the major currencies being traded today: U.S. dollar, Japanese yen, euro, etc.
This is also the value that an individual consumer will pay for an imported good at the consumer level. This price will include any tariffs and transactions costs associated with importing the good. Related Terms:
Balance Of Trade - BOT
Base Currency
Currency Pair
Exchange Rate
Inflation
Nominal Effective Exchange Rate - NEER
Tariff
Weighted Average |