A Primer on the IMF's Information Notice System

The International Monetary Fund's Information Notice System (INS) came into existence in 1983 to facilitate surveillance over the exchange rate policy of Fund members, as dictated in the IMF.s Articles of Agreement. Under the INS, real and nominal effective exchange rate series are computed for almost all Fund members. Following revisions to the INS in 1986 and 1994-96, real effective exchange rates based on unit labor costs are computed for 21 industrial countries, while nominal effective exchange rates and real effective exchange rates based on consumer price indices are computed for almost all Fund members. To derive real effective exchange rates based on unit labor costs, partner country weights are computed from 1989-91 data on trade in manufactured goods, taking into account competition between imports and locally produced import-substituting goods, competition between own exports and locally produced foreign goods, and competition between own exports and exports of other countries in third markets. In addition, unit labor cost series are filtered to remove fluctuations at business cycle frequency. For most Fund members, computation of real effective exchange rates based on consumer price indices relies on a weighting scheme that takes into account trade in manufactured goods, primary commodities, and, where significant, tourism services over the period 1988-90. As in the computation of real effective exchange rates based on unit labor costs, the weights reflect both direct and third-market competition. For a group of recent members to the Fund and a very limited number of other countries, available data do not permit the use of this methodology. For these countries, a simple weighting scheme is used to compute effective exchange rates based on bilateral import and export shares. A large number of the nominal and real effective exchange rate series computed under the INS are published in the Fund's International Financial Statistics.