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The macroeconomic effects of large exchange rate appreciations

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  • Kappler, Marcus
  • Reisen, Helmut
  • Schularick, Moritz
  • Turkisch, Edouard

Abstract

In this paper we study the macroeconomic effects of large exchange rate appreciations. Using a sample of 128 countries from 1960-2008, we identify large nominal and real appreciations shocks and study their macroeconomic effects in a dummy-augmented panel autoregressive model. Our results show that an exchange rate appreciation can have strong effects on current account balances. Within three years after the appreciation event, the current account balance on average deteriorates by three percentage points of GDP. This effect occurs through a reduction of savings without a meaningful reduction in investment. Real export growth slows down substantially, while imports remain by and large unaffected. The output costs of appreciation are small and not statistically significant, indicating a shift towards domestic sources of growth. All these effects appear somewhat more pronounced in developing countries. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2011/3.

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Date of creation: 2011
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Handle: RePEc:zbw:fubsbe:20113

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Keywords: current account adjustment; global imbalances; exchange rate changes;

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Renminbi and Poor-Country Growth
    by Shifting Wealth in ShiftingWealth on 2011-12-02 09:41:00
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Cited by:
  1. Teng, Faxin & Meier, Claudia & Kamenev, Dmitry & Klein, Martin, 2011. "Trade integration,restructuring and global imbalances --A tale of two countries," MPRA Paper 31946, University Library of Munich, Germany.
  2. Allegret, Jean-Pierre & Sallenave, Audrey, 2014. "The impact of real exchange rates adjustments on global imbalances: A multilateral approach," Economic Modelling, Elsevier, vol. 37(C), pages 149-163.
  3. Barry Eichengreen & Andrew K. Rose, 2012. "Flexing Your Muscles: Abandoning a Fixed Exchange Rate for Greater Flexibility," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 353 - 391.
  4. Erick Lahura & Marco Vega, 2013. "Asymmetric effects of FOREX intervention using intraday data: evidence from Peru," BIS Working Papers 430, Bank for International Settlements.
  5. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
  6. Bussirère, Matthieu & Lopez, Claude & Tille, Cédric, 2013. "Currency Crises in Reverse: Do Large Real Exchange Rate Appreciations Matter for Growth?," MPRA Paper 44053, University Library of Munich, Germany.
  7. Victor Pontines & Reza Siregar, 2012. "Episodes of Large Exchange Rate Appreciations and Reserves Accumulations in Selected Asian Economies: Is Fear of Appreciation Justified?," CAMA Working Papers 2012-31, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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