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Exchange rates during financial crises

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  • Marion Kohler

Abstract

Exchange rate movements during the global financial crisis of 2007-09 were unusual. Unlike in two previous episodes - the Asian crisis of 1997-98 and the crisis following the Russian debt default in 1998 - in 2008 a large number of currencies depreciated sharply even though they were not at the centre of the crisis. Moreover, during 2009, the crisis-related movements reversed strongly for a number of countries. Two factors likely have contributed to these developments. First, during the latest crisis, safe haven effects went against the typical pattern of crisis-related flows. Second, interest rate differentials explain more of the crisis-related exchange rate movements in 2008-09 than in the past. This probably reflects structural changes in the determinants of exchange rate dynamics such as the increased role of carry-trade activity.

Suggested Citation

  • Marion Kohler, 2010. "Exchange rates during financial crises," BIS Quarterly Review, Bank for International Settlements, March.
    • Handle: RePEc:bis:bisqtr:1003f
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G01 - Financial Economics - - General - - - Financial Crises

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