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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

Suggested Citation

  • Fratzscher, Marcel, 2009. "What explains global exchange rate movements during the financial crisis?," Working Paper Series 1060, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20091060
    Note: 335955
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rates; financial crisis; global imbalances; shocks; transmission channels.; United States; US dollar;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets

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    This paper has been announced in the following NEP Reports:

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