BANK OF ISRAEL
Office of the Spokesperson and Economic Information
October 28, 2015
Press Release
The Bank of Israel updates the calculation of weights in the nominal effective exchange rate
The Bank of Israel calculates and publishes the nominal effective exchange rate index on a daily
basis, similar to other central banks. This index is comprised of a weighted average of a number of
exchange rates, reflecting the relative importance of each currency in Israel’s foreign trade.
The weights in the existing index were last updated in 2009. Since then, there have been changes
in the composition of Israel’s foreign trade. Therefore, the Bank of Israel has examined revising
the weights in the index in order for it most precisely represent the nominal effective exchange
rate. In addition to the changes in the breakdown of trade in goods, the revised index is also based
on data on the geographic breakdown of trade in business services, which were not available at the
time the weights in the existing index were calculated. The weight of these services have grown
constantly, reaching about one-quarter of Israel’s foreign trade.
The weights in the new index are calculated on the basis of the bilateral flow of trade of goods and
services, while adjusting for third party competition—which is expressed in Israeli exports
competing with manufacturers from a large number of countries in each market to which they are
exported, and not just with domestic manufacturers in that country. The new index includes 33
countries and 26 currencies (the difference being the result of the fact that 8 European countries
included in the index use the same currency—the euro), compared to the existing index that
included 38 countries and 28 currencies.
The update of the weights led to an increase in the weight of the US dollar as a result of the
inclusion of trade in services, about half of which takes place with the US, and an increase in the
weight of the Chinese yuan as a result of increased trade with China. In parallel, there was a
decline in the weight of the eurozone countries. In total, the effect of the changes on the index
itself is not large, and the new index indicates a similar picture to that described by the
development of the old index. As a result of the strengthening of the dollar worldwide in the past
year, the revised index indicates an exchange rate that is slightly depreciated compared to the old
index. However, even according to the new index, the level of the exchange rate is the most
appreciated in a long time.
Bank of Israel - update of exchange rate components Oct. 28th, 2015
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Table: Revision of the weights of the major currencies in the effective exchange rate
(percent)
Old weight
New weight
Euro
32.6
26.4
US dollar
24.8
26.4
Yuan
5.7
10.2
Pound sterling
5.2
6.0
Turkish lira
3.9
4.6
Other currencies1
27.8
26.4
Figure: The Nominal Effective Exchange Rate - Levels*
(Index, January 1, 2010 = 100)
* Daily data, January 1, 2010 – October 26, 2015.
1
The complete weight chart appears here. Click here for the full document.
Bank of Israel - update of exchange rate components Oct. 28th, 2015
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