The real effective exchange rate is key indicator in open-economy macroeconomics, often used for evaluating external competitiveness and assessing misalignment of nominal exchange rates. But in its conventional formulation, trading partners are weighted by gross trade values, which are inappropriate in the presence of vertical specialization and global value chains (GVCs). To this end, this paper accounts for intermediate input trade and uses ADB MRIOT data for 63 economies from 2000-2021 to compute nominal and real effective exchange rates. The paper will discuss how effective exchange rates have evolved in developing Asia since 2000 and during the COVID-19 pandemic.

JEL codes: B17