Industry-Specific Exchange Rates for the United States

[...]In this article, we demonstrate how such industry-specific realexchange rates can be constructed and present the recent pathsof these indexes. We next present three basic real exchange ratemeasures for each industry: one using export partner weightsonly, a second using import partner weights, and a third using anaverage of export and import weights by industry. After we detailconstruction methods for these three industry-specific realexchange rates, we present diagnostics on the extent to whicheach construct co-moves or diverges from aggregateeconomywide measures. One basic and well-known observationis that there is a large divergence between U.S. exports andimports across country trade partners. Compared with thepartners of U.S. exporters, U.S. importers tend to purchase alarger share of goods from less developed countries. Even withinan industry, such differences mean that exporting producersmay experience an exchange-rate-induced change incompetitive conditions quite different from that of U.S.producers facing import competition or using importedcomponents in production.3 Distinctions across industries aresometimes even larger, and specific bilateral exchange ratechanges can trigger vastly different pressures on producers indifferent industries.[...]