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What explains global exchange rate movements during the financial crisis?

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  • Fratzscher, Marcel

Abstract

A striking and unexpected feature of the financial crisis has been the sharp appreciation of the US dollar against virtually all currencies globally. The paper finds that negative US-specific macroeconomic shocks during the crisis have triggered a significant strengthening of the US dollar, rather than a weakening. Macroeconomic fundamentals and financial exposure of individual countries are found to have played a key role in the transmission process of US shocks: in particular countries with low FX reserves, weak current account positions and high direct financial exposure vis-à-vis the United States have experienced substantially larger currency depreciations during the crisis overall, and to US shocks in particular. JEL Classification: F31, F4, G1

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1060.

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Date of creation: Jun 2009
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Handle: RePEc:ecb:ecbwps:20091060

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Keywords: Exchange Rates; financial crisis; global imbalances; shocks; transmission channels; United States; US dollar;

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