1st Quarter 2013

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Updating the Index:
Tennessee Trade-Weighted Dollar

The fit between state exports and the strength of the dollar is stronger than a decade ago.
by Steven G. Livingston | 1 | 2 | 3 | 4 | 5 | 6

In this issue, we update the Tennessee Trade-Weighted Dollar Index. Doing so also provides us with an overview of how the geography of the state's trade has been changing. That the value of the dollar has a large impact on trade is hardly a controversial statement. For Tennessee, two simple graphs illustrate the point. The first displays the state's export growth against the Tennessee dollar index. The index is shown reversed (it the goes up when the dollar goes down).1 The fit is quite remarkable. If we graph the change in each month's exports versus each month's change in the dollar index, we see the same strong relationship. The fit between state exports and the strength of the dollar is actually even stronger than we were seeing a decade ago.

exports 1995
[larger view]

The strength of the dollar is measured using a trade-weighted index. "Trade-weighted" simply means the index is composed of each major export market adjusted by its size. For the case of Tennessee, the exchange rate with Canada counts for a great deal but that with Argentina not so much. Our revised index is created from the 24 markets that each account for at least 0.5% of the value of the state's foreign shipments, as averaged over the years 2010 to 2012. (The nations using the euro are treated as one market.) These markets together account for more than 90% of total Tennessee exports. Each market and its percentage in the index is given in a chart at the end of this article.

1. Exports are shown on a logarithmic scale, though the numbers on the axes are the real value of exports. The scale essentially indexes the export level.

exports 1995
[larger view]

continued | 1| 2 | 3 | 4 | 5 | 6