Measuring the Real Effective Exchange Rate
Experience of Turkey
Serdar ERKILIÇ
Central Bank of the Republic of Turkey
Statistics Department / Balance of Payments Division
Joint NBRM & ECB Seminar on Statistics
2-5 October 2013, Skopje
Contents
 References
 Real Effective Exchange Rate Methodology
 Turkey’s REER (2003-2013)
References
 Saygılı, H., Saygılı, M. and Yılmaz, G. (2010). Türkiye için Yeni Reel Efektif Döviz Kuru
Endeksleri (New Real Effective Exchange Rate Indexes for Turkey). CBT Working Paper
No: 10/12. http://www.tcmb.gov.tr/research/discus/2010/WP1012.pdf
 Saygılı, H., Saygılı, M. and Yılmaz, G. (2010). Yeni Endekslerle 2003-2010 Dönemi Reel
Efektif Döviz Kuru Gelişmelerine İlişkin Gözlemler (Observations with New Indexes on
2003-2010 Period Real Effective Exchange Rate Developments). Research Notes in
Economics, CBT, Ankara.
 Yılmaz, G. and Gönenç, R. (2008). How did the Turkish Industry Respond to Increased
Competitive Pressures, 1998-2007? Working Paper, CBT, Ankara.
 Saygılı, M., Şahinbeyoğlu G. and Özbay, P. (1998). Competitiveness Indicators and
the Equilibrium Real Exchange Rate Dynamics in Turkey", in Macroeconomic Analysis
of Turkey: Essays on Current Issues. Working Paper, CBT, Ankara.
 Kıpıcı, A.N. and Kesriyeli , M. (1997). Reel Döviz Kuru Tanımları ve Hesaplama
Yöntemleri (Real Exchange Rate Definitions and Calculation Methods). Working
Paper, CBT, Ankara.
Methodology-1
 REER released by the Central Bank of Turkey (CBT), is computed as the weighted
geometric average of the prices in Turkey relative to the prices of its principal trade
partners in international markets. The real effective exchange rate can be formulated
as follows:
𝑁
𝑖=1
𝑃𝑇𝑈𝑅
[
]𝑤𝑖
𝑃𝑖 ∗ 𝑒𝑖 , 𝑇𝑈𝑅
where,
wi, is country i’s weight in Turkey’s REER index
PTUR, is the price index in Turkey
Pi, is the price index in country i
ei,TUR, is the nominal exchange rate of country i in terms of Turkish Lira (TL)
N, is the number of countries included in the analysis
Methodology-2
Data sources are as follows:
• CPI and PPI
o CBT Electronic Data Delivery System (CBT EDDS)
o International Financial Statistics (IMF IFS)
o For Taiwan CPI data, International Labor Organization database
• Exchange Rates (monthly averages of nominal exchange rates)
o CBT EDDS
o IMF IFS (For pre-April 2009, IMF IFS database is used for Czech Republic, Poland,
Hungary, Bulgaria, Romania, Malaysia, Russia, Kazakhstan, Thailand, Iran, China,
Indonesia, Egypt and India. Figures are converted to TL).
o Oanda (www.oanda.com) (For Taiwan dollar exchange rates, figures are
converted to TL)
o Eurostat (For Pre-2001 Greece and pre-2009 Slovak Republic generic euro rates)
Methodology-3
• Unit Labor Cost indexes (seasonally adjusted) (*)
o OECD Olisnet
• Bilateral Trade (SITC 5-8)
o UN Comtrade
o Taiwan Bureau of Foreign Trade (**) (http://cus93.trade.gov.tw/ENGLISH/FSCE/)
• GDP and Manufacturing Production
o World Bank Development Indicators
o OECD Olisnet (For countries not available on World Bank database)
o Taiwan Council for Economic Planning and Development
(http://www.cepd.gov.tw)
(*) Data for Turkey is available on OECD Olisnet until 2006. For later periods, quarterly “Manufacturing Production Index” from CBT
EDDS and “Manufacturing Industry Gross Wage Index” from Turkish Statistics (TURKSTAT) are used to extend the ULC series.
“Nominal Unit Wage” is calculated by dividing the production index by the wage index. To be compatible with OECD data, seasonally
adjusted ULC index for the post first quarter of 2007 is expanded by using the year on year increase in the generated nominal unit
wage index.
(**) Bilateral aggregate exports and imports data are available. The ratio of manufacturing trade is determined by using World Trade
Organization database.
Countries’s Weight in Turkey’s CPI and PPI Based REER
CPI
Germany
China
Italy
USA
France
England
Spain
Russia
Belgium
Netherlands
Japan
South Korea
Romania
Switzerland
Poland
India
Austria
Sweden
Hungary
Bulgaria
Taiwan
Greece
Czech Republic
Thailand
Israel
Finland
Kazakhistan
Iran
Saudi Arabia
Denmark
Ireland
Indonesia
Malaysia
Slovakia
Egypt
Portugal
Total
Number of Countries
Weight (%)
16,36
10,91
8,04
7,21
6,95
5,41
4,10
3,85
3,70
3,62
2,96
2,86
1,99
1,87
1,72
1,56
1,34
1,34
1,14
1,08
1,05
0,95
0,93
0,86
0,85
0,82
0,80
0,74
0,74
0,73
0,68
0,66
0,63
0,58
0,55
0,41
100
36
PPI
Germany
Italy
USA
France
England
Spain
Belgium
Netherlands
Japan
South Korea
Romania
Switzerland
Poland
India
Austria
Sweden
Hungary
Bulgaria
Greece
Czech Republic
Thailand
Israel
Finland
Kazakhistan
Iran
Ireland
Indonesia
Malaysia
Slovakia
Egypt
Portugal
Total
Number of Countries
Weight (%)
19,78
9,72
8,71
8,41
6,54
4,96
4,48
4,38
3,58
3,46
2,41
2,26
2,08
1,88
1,62
1,62
1,38
1,30
1,15
1,13
1,05
1,03
0,99
0,97
0,88
0,83
0,79
0,76
0,71
0,66
0,50
100
31
CPI Based REER
DEVELOPED COUNTRIES Weight (%)
Germany
22,48
Italy
11,05
USA
9,90
France
9,55
England
7,44
Spain
5,64
Belgium
5,09
Netherlands
4,98
Japan
4,07
South Korea
3,93
Switzerland
2,57
Austria
1,84
Sweden
1,84
Taiwan
1,44
Greece
1,30
Czech Republic
1,28
Israel
1,17
Finland
1,13
Denmark
1,00
Ireland
0,94
Slovakia
0,80
Portugal
0,56
DEVELOPING COUNTRIES Weight (%)
China
40,08
Russia
14,15
Romania
7,32
Poland
6,31
India
5,72
Hungary
4,18
Bulgaria
3,96
Thailand
3,18
Kazakhistan
2,95
Iran
2,71
Saudi Arabia
2,70
Indonesia
2,41
Malaysia
2,32
Egypt
2,01
Total
Number of Countries
Total
Number of Countries
100
22
100
14
Source: UN COMTRADE
Note: 2009 IMF classification is used for grouping 36 countries
according to their development level.
Coverage
2 criteria while selecting the countries:
• shares in Turkey’s foreign trade (domestic market effect)
• competition in the other markets (third-country effect)
For CPI based REER
 Share of 36 Countries’ exports (X) and imports (M) in Turkey’s total foreign
trade for 2006-2008 period in terms of UN Standard International Trade
Classification (SITC 5-8, Manufactured goods)
 79,4 %
 Shares of Developed (22) and Developing (14) Countries’ (X) and (M) in 80%
of Turkey’s foreign trade for 2006-2008 period, respectively
 73,2%
 26,8%
e.g. calculation:
Germany’s weight in developed countries  22,4 % ((16,4/73,2)*100)
China’s weight in developing countries  40 % ((10,9/26,8)*100)
Data: Consumer and Producer Prices, IMF IFS
Data: Exchange Rates, CBRT EDDS
Data: Exchange Rates, OANDA
Jan-03
Mar-03
May-03
Jul-03
Sep-03
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Sep-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Consumer Price Index (CPI) Based REER (2003=100)
150
140
130
120
110
100
90
80
CPI Based REER (2003=100)
CPI - Developing Countries - Based REER (2003=100)
CPI - Developed Countries - Based REER (2003=100)
Jan-03
Mar-03
May-03
Jul-03
Sep-03
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Sep-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Producer Price Index (PPI) Based REER (2003=100)
130
125
120
115
110
105
100
95
90
PPI Based REER (2003=100)
Unit Labor Cost (ULC) Based REER* (2003=100)
150
140
130
120
110
100
2012-Q1
2011-Q4
2011-Q3
2011-Q2
2011-Q1
2010-Q4
2010-Q3
2010-Q2
2010-Q1
2009-Q4
2009-Q3
2009-Q2
2009-Q1
2008-Q4
2008-Q3
2008-Q2
2008-Q1
2007-Q4
2007-Q3
2007-Q2
2007-Q1
2006-Q4
2006-Q3
2006-Q2
2006-Q1
2005-Q4
2005-Q3
2005-Q2
2005-Q1
2004-Q4
2004-Q3
2004-Q2
2004-Q1
2003-Q4
2003-Q3
2003-Q2
2003-Q1
90
ULC Based REER (2003=100) (*)
(*) Due to the fact that Organisation for Economic Co-operation and Development (OECD) has terminated releasing unit
labor cost data of countries, the data cannot be updated after 2012Q1.
Turkish Lira Sign
the Central Bank of
the Republic of Turkey
http://www.tcmb.gov.tr/
Data/Periodic Data/
«Real Effective Exchange Rate»
Data/Statistical Data/
«Electronic Data Delivery System (EDDS)»