The Real Effective Exchange Rate (REER) adjusts the Nominal Effective Exchange Rate (NEER) for inflation differentials between the home country and its trading partners.
- True
- False
Answer: True
While NEER measures the weighted average of a currency relative to a basket of others, REER adjusts this for relative inflation rates. REER is a superior indicator of a country's actual trade competitiveness, as high domestic inflation can erode the benefits of a nominally depreciated currency.