Effective is a weighted average exchange rate index calculated with a variable as the weight.
It refers to the sum of the weighted average exchange rate of a country against the currencies of all sample countries during the reporting period, with selected variables as the weights, and is calculated by comparison with the base exchange rate.
In general, the ratio of bilateral trade between a country and the sample country to the country’s total foreign trade can be used as a weight for all sample countries.
The effective exchange rate is a very important economic indicator.
The effective exchange rate calculated with the weight of trade proportion reflects the overall competitiveness and overall volatility of a country in international trade.
Effective exchange rate can be divided into real effective exchange rate and nominal effective exchange rate, which are two exchange rate monitoring indicators derived from the theory of exchange rate determination.
