What is REER Model in Currency Markets?
There is difference between the exchange rate of a currency and the real value of a currency. A Nominal Effective Exchange Rate (NEER) is weighted with the inverse of the asymptotic trade weights. A Real Effective Exchange Rate (REER) adjusts NEER by appropriate foreign price level and deflates by the home country price level. Thus REER model is more useful in determining the real value of a currency.