Template-Type: ReDIF-Paper 1.0 Author-Name: Irina Bogacheva Author-Email: BogachevaIV01@cbr.ru Author-Workplace-Name: Bank of Russia, Russian Federation Author-Name: Alexey Porshakov Author-Email: PorshakovAS@cbr.ru Author-Workplace-Name: Bank of Russia, Russian Federation Author-Name: Natalia Turdyeva Author-Email: TurdyevaNA@cbr.ru Author-Workplace-Name: Bank of Russia, Russian Federation Title: Sectoral Real Effective Exchange Rate and Industry Competitiveness in Russia Abstract: One of the most popular measures for the economy’s cost competitiveness in foreign trade is the real exchange rate. The common approach to its calculation consists in adjusting the nominal exchange rates for the trade-weighted CPI-based inflation differentials between the domestic economy and its major trade partners. Although such approach is most often used for official statistics, the CPI-based real exchange rate does not accurately capture an economy’s competitiveness in foreign trade. The latter is explained by the fact that the CPI naturally considers price changes for both tradable and non-tradable goods. We aim at constructing a set of alternative indicators of REER that would more extensively account for the structure of the Russian economy and its foreign trade and, hence, provide more reliable estimates of changes in Russian economy's cost competitiveness over time. This is done by taking into an account the structure of the Russian economy combined with the specificities of production processes in industries that are extensively involved in foreign trade, as well as integration of Russian industries into global value chains. Against this background, we also show the importance of distinguishing between the output-based and cost-based real exchange rate concepts when addressing the country’s trade competitiveness issue. Length: 46 pages Creation-Date: 2020-07 Revision-Date: Publication-Status: File-URL: http://cbr.ru/Content/Document/File/108668/wp-59_e.pdf File-Format: Application/pdf File-Function: Number: wps59 Classification-JEL: F3, F41, F63 Keywords: Real Effective Exchange Rate, Global Value Chains, Input-Output Tables, Industry Competitiveness Handle:RePEc:bkr:wpaper:wps59