@techreport{NBERw18498,
 title = "Value-Added Exchange Rates",
 author = "Rudolfs Bems and Robert C. Johnson",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "18498",
 year = "2012",
 month = "October",
 URL = "http://www.nber.org/papers/w18498",
 abstract = {This paper updates the conceptual foundations for measuring real effective exchange rates (REERs) to allow for vertical specialization in trade.  We derive a value-added REER describing how demand for the value added that a country produces changes as the price of its value added changes relative to competitors.  We then compute this index for 42 countries from 1970-2009 using trade measured in value added terms and GDP deflators.  There are substantial differences between value-added and conventional REERs.  For example, China's value-added REER appreciated by 20 percentage points more than the conventional REER from 2000-2009.  These differences are driven mainly by the theory-motivated shift in prices used to construct the value-added REER, not changes in bilateral weights.},
}