FACTORS BEHIND THE 2025 APPRECIATION OF THE EURO EXCHANGE RATE AND THEIR MACROECONOMIC IMPACT

L. Coutinho, O. Croitorov, B. Pataracchia, M. Ratto, A. Rezessy and J. Teresinski and L. Coutinho Author-Name O. Croitorov Author-Name B. Pataracchia Author-Name M. Ratto Author-Name A. Rezessy Author-Name J. Teresinski

Quarterly Report on the Euro Area (QREA), 2026, vol. 25, issue 1, 7-19

Abstract: Exchange rate movements can arise from different shocks, and their broader economic effects vary with the nature of these shocks. Between its trough in February 2025 and December 2025, the euro nominal effective exchange rate (NEER) appreciated by 7.3%. This appreciation, largely due to a strengthening against the dollar and the Chinese renminbi, can be interpreted within a structural macroeconomic model. According to the model estimation, movements in the euro NEER have arisen predominantly from changes in risk premia, affecting the uncovered interest parity condition (UIP), and to an increase in non-energy foreign goods prices. Simulations suggest that the macroeconomic impact of these shocks (particularly the UIP risk premium shock) on output and inflation in the euro area was quantitatively modest relative to other disturbances.

Keywords: exchange rate; pass-through; uncovered interest parity (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0251-01

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