Bryan Acree
Economic Review, Vol. 84, No. 3, 1999
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For more than a decade the Federal Reserve Bank of Atlanta's trade-weighted dollar index has served as a summary statistic for foreign exchange movements of the dollar. Recent revisions acknowledging significant changes in the worldwide economy ensure that the index will continue to contribute valuable information into the future.
One significant revision to the Atlanta Fed index is to include all eleven countries that adopted the euro on January 4, 1999. Other revisions take into account that the spread of market-based economics, together with deregulation and privatization in many developed and emerging markets, has totally reshaped the trade environment in which U.S. firms do business. Trade agreements like the North American Free Trade Agreement and the liberalization of financial flows have reduced many barriers to trade. Consequently, the revised index updates various countries' trade weights and introduces some important trading partners not included in the original formulation of the index, thereby enhancing its value as a summary statistic of the dollar's value.
In addition to explaining the revisions and the rationale for construction of the Atlanta Fed currency index, the author discusses it in comparison with recently revised indexes created by the Federal Reserve Board of Governors and the Federal Reserve Bank of Dallas. He points out that users should seek out the index that provides measurements best suited to their needs.
September 1999