Currency Crises in Reverse: Do Large Real Exchange Rate Appreciations Matter for Growth?

Matthieu Bussirère, Claude Lopez and Cédric Tille
Authors registered in the RePEc Author Service: Matthieu Bussière

MPRA Paper from University Library of Munich, Germany

Abstract: While currency crises have been extensively studied, the opposite phenomenon, large appreciations, has been far less researched. We fill this gap by providing an empirical exploration of historical episodes of large real exchange rate appreciations, using a sample of 28 advanced and 25 emerging market economies, with annual data going back to 1970. We focus on the impact of large appreciations on output growth. Our first finding is that countries experiencing large real exchange rate appreciations display distinct patterns: large appreciations significantly lower export growth and boost import growth on impact. Strikingly, however, output growth is higher, on average, despite the adverse impact on exports. Our second finding is that these aggregate numbers hide substantial heterogeneity, which we link to the nature of the shocks that cause the appreciation. In particular, appreciations associated with so-called “capital flow bonanzas” have a marked downward effect on growth. This pattern is consistent with the insights from a simple model that contrasts the impact of productivity shocks with that of capital inflows shocks. Higher productivity in the traded sector leads to a boom in traded output and a current account surplus, while higher foreign lending leads to a boom in non-traded output and an external deficit as traded output falls and consumption increases.

Keywords: exchange rate; currency crises; endaka; international trade; international capital flows; lending booms; small open economy macroeconomics (search for similar items in EconPapers)
JEL-codes: F10 F30 F41 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/44053/1/MPRA_paper_44053.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/52011/9/MPRA_paper_52011.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/54892/19/MPRA_paper_54892.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/44096/1/MPRA_paper_44096.pdf revised version (application/pdf)

Related works:
Working Paper: Do Real Exchange Rate Appreciations Matter for Growth? (2014)
Working Paper: Do Real Exchange Rate Appreciations Matter for Growth? (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:44053

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().