The index of the effective exchange rate

The index of the nominal effective exchange rate (NEER) characterises the strength of the national currency relative to the currency of the partner countries, without taking into account changes in price levels. The increase in the value of the index indicates the strengthening of the national currency and the decrease indicates the weakening. The real effective exchange rate (REER) index takes into account, in addition to exchange rate changes, changes in price levels in partner countries and shows a change in the country's competitiveness compared to that of partner countries. As there are many euro area countries among Estonia's main trading partners, separate indices are calculated for the euro area and non-euro area countries. The index of the nominal effective exchange rate of the euro against the main trading partners of the euro area is always equal to one, since there is no effect of the exchange rate. The real effective exchange rate index of the euro against the main trading partners in the euro area therefore shows only changes in price levels, which are reflected in consumer price indices.