Revisions to the Federal Reserve Dollar Indexes - January 2019

Oct 12, 2026

Starting in February 2019, the Federal Reserve will revise the foreign exchange rate indexes released in H.10, G.5, and G.5A. The note explains how the broad dollar index and its AFE and EME sub-indexes are constructed, including the daily update method using geometrically weighted averages and the trade-based currency weights derived from BEA data. It further details key methodological changes: adding services to trade weights, simplifying weight calculations, and periodically reviewing currency composition to reflect bilateral trade patterns.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages16

Reading Time6 min

AccessFree to download

Index construction

Three dollar indexes and scope

Daily index updating method

Computing currency weights from trade

Changes to the index construction

Addition of services

Simplification of weight calculations

Periodic review of currency composition

Board of Governors ofthe Federal Reserve System IFDP Notes January 2019 Revisions to the Federal Reserve Dollar Indexes von Beschwitz, Bastian, Christopher G. Collins, and Deepa D. Datta Please cite this Note as: von Beschwitz, Bastian, Christopher G. Collins, and Deepa D. Datta (2019) .“Revisions to the Federal Reserve Dollar Indexes,” IFDP Notes. Washington: Board of Governors ofthe Federal Reserve System, January 2019. [https://doi.org/10.17016/2573-2129.48](https://doi.org/10.17016/2573-2129.48) Disclaimer: IFDP Notes are articles in which Board economists offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than IFDP Working Papers. Revisions to the Federal Reserve Dollar Indexes Bastian von Beschwitz, Christopher G. Collins, and Deepa D. Datta1 Starting in February 2019, the Federal Reserve will make important changes to the foreign exchange rate indexes included in the H.10, G.5, and G.5A releases. The changes include revisions to the weighting scheme and country composition. This note details the construction of the indexes and describes the motives for the changes to the methodology. 2 I. Index construction The Federal Reserve dollar indexes are designed to help estimate the overall effects of U.S. dollar exchange rate movements [on U.S. international](on U.S. international) trade. There are three indexes: the broad dollar index, which is constructed using the currencies of the most [important U.S. trading](important U.S. trading)[ ](important U.S. trading)[partners by volume of bilateral trade](partners by volume of bilateral trade), and two sub-indexes, which split the currencies in the broad index into advanced foreign economies (AFE) and emerging market economies (EME) .3 This section describes the methodology for constructing these indexes that goes into effect starting in February 2019; the next section describes how this methodology differs from the prior approach; section 3 describes how these changes are implemented; and section 4 examines the effects of these changes. The broad dollar index contains the currencies of 26 economies for which bilateral trade with the United States accounts for at least 0.5 percent of total U.S. bilateral trade. These economies are listed in Table 1. The AFE dollar index contains seven currencies, and the EME dollar index contains the remaining 19 currencies. Consistent with market practice, daily changes in the indexes are computed using geometricallyweighted averages of changes in bilateral exchange rates. The index at time t (􀜫􀯧) is: 􀜫􀯧 = 􀜫􀯧−1 ∗ ∏􀯇􀯝=(􀯧1) (􀝁􀯝 , 􀯧⁄􀝁􀯝, 􀯧−1)􀯪 􀳕, 􀳟 , (1) where 􀀳 represents the product operator, 􀜫􀯧−1 is the value of the index at time t-1; 􀝁􀯝 , 􀯧 and 􀝁􀯝, 􀯧−1 are the prices ofthe U.S. dollar in terms of foreign currency j at times t and t-1; 􀝓􀯝 , 􀯧 is the weight of currency j in the index at time t; N(t) is the number of foreign currencies in the index at time t; and the weights sum to one (∑􀯝 􀝓􀯝 , 􀯧 = 1) . The weights are computed using annual bilateral trade data published by the Bureau of Economic Analysis (BEA) . For each economy j, the weight at time t is: 1 We thank Daliah R. Al-Shakhshir, Vickie L. Chang, and Samantha A. Sharkoff for excellent research assistance. 2 More details on the prior methodology are provided in "Indexes of the Foreign Exchange Value of the Dollar,"Federal Reserve Bulletin, 91:1 (Winter 2005), pp. 1-8 ([http://www.federalreserve.gov/pubs/bulletin/2005/winter05_index.pdf](http://www.federalreserve.gov/pubs/bulletin/2005/winter05_index.pdf)). 3 The AFE dollar index was formerly called the major index, and the EME dollar index was called the other important trading partners (OITP) index. 􀝓􀯝 , 􀯧 = ∑(􀳟1􀳆)~~ ~~􀳄􀯍,􀳕􀳆,~~ ~~􀳟􀳄,􀳕,~~ ~~􀳟~~ ~~ (2) 􀜶􀯎􀯌,􀯝, 􀯧 = 􀜯􀯚􀯎􀯢􀯌,􀯢􀯝,􀯗􀯧􀯦 + 􀜯􀯦􀯎􀯘􀯌􀯥,􀯩􀯝, 􀯜􀯖􀯘􀯦􀯧 + 􀜺􀯚􀯎􀯢􀯌,􀯢􀯝,􀯗􀯧􀯦 + 􀜺􀯦􀯎􀯘􀯌􀯥,􀯝􀯩, 􀯜􀯖􀯘􀯦􀯧 . (3) 􀜶􀯎􀯌,􀯝, 􀯧 is the total bilateral trade between the United State

FAQs

What changes will the Federal Reserve make to the foreign exchange rate indexes starting in February 2019?

The changes include revisions to both the weighting scheme and the country composition of the indexes used in H.10, G.5, and G.5A releases.

How are the Federal Reserve dollar indexes updated on a daily basis?

Daily changes are computed using geometrically weighted averages of changes in bilateral exchange rates, updating the index from its prior value with currency-specific weights.

What methodological revisions are made to how currency weights are calculated?

The note adds services to trade weights and simplifies calculations by using a simple fraction of total bilateral trade rather than the prior multi-component weighting approach.

Oct 12, 2026

Uploaded by A glass of water