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70Dutch Disease Investigated: Empirical Evidence from Selected South-East Asian Economies APPENDEX (A): Variables defined Measurement of real exchange rate The real exchange rate (RER) is the price of traded goods relative to the price of non-traded (domestic) goods. In the absence of readily available indices of tradable and non-tradable prices, the real exchange rate has to be proxied by available domestic and world price indices and nominal exchange rates. There is no unique way of constructing a proxy measure, but all commonly used measures compute the ratio, Where NER denotes the nominal exchange rate (measured as domestic currency per foreign currency), PW is an index of foreign prices and PD is an index of domestic prices. NER and PW are weighted averages computed across trading partner countries. The country weights are based on export shares, import shares or, most commonly, shares based on the sum of exports and imports taken from IMF original weights10. The countries included are Canada, Japan, United Kingdom, United States, Belgium, France, Germany, Italy, Netherlands, India, Korea, Singapore and Malaysia. The ratio of an index of a country’s period average exchange rate to a weighted geometric average of exchange rates for the currencies of selected countries, weighted by each country’s trade, and adjusted for relative changes in consumer prices. Base year =
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