Estimating the Real Effective Exchange Rate (REER) for Belize

The purpose of this paper is to assess Belize’s external competitiveness primarily through calculating the real effective exchange rate (REER) index for the period 2000‐2009. This paper expands on earlier works on the REER by Brownbridge and Arana by estimating a “composite” index that takes into account “third party competition” as well as the traditional approaches based on direct import and export competition. Two more types of competitiveness indicators are also calculated, namely a commodity based REER and a tourism oriented REER. The results for all three REER indices showed that for the period under review the index was generally falling, meaning that the exchange rate depreciated. A depreciation of the currency is understood to signify a gain in the competitiveness of the country’s external sector.