Real Exchange Rates and the Global Financial Cycle

Jonathan Davis and Andrei Zlate

No 2416, Working Papers from Federal Reserve Bank of Dallas

Abstract: We study the effect of fluctuations in the global financial cycle on real exchange rates (RER). On average, a downturn in the global financial cycle leads to RER depreciation relative to the U.S. dollar. However, there is considerable heterogeneity in the RER responses among advanced, emerging and developing economies; between net creditor and net debtor countries; and over time. When decomposing RER changes into components reflecting the nominal exchange rates and inflation differentials, we again uncover substantial heterogeneity across countries and over time. RER adjustments in advanced economies occurred mostly through nominal exchange rates. However, RER adjustment in emerging and developing economies occurred through both nominal rates and prices early in our sample period, but mostly through nominal rates later in the sample period.

Keywords: global financial cycle; real exchange rates (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 26
Date: 2024-11-26, Revised 2025-05-20
New Economics Papers: this item is included in nep-fdg, nep-ifn, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.dallasfed.org/~/media/documents/research/papers/2024/wp2416r1.pdf Full text (application/pdf)
https://www.dallasfed.org/~/media/documents/research/papers/2024/wp2416a.pdf Appendix (application/pdf)

Related works:
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:fip:feddwp:99214

Ordering information: This working paper can be ordered from

DOI: 10.24149/wp2416r1

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().