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The macroeconomic effects of large exchange rate appreciations

Marcus Kappler, Helmut Reisen (), Moritz Schularick () and Édouard Turkisch ()

No 2011/3, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: In this paper we study the macroeconomic effects of large exchange rate appreciations. Using a sample of 128 countries from 1960-2008, we identify large nominal and real appreciations shocks and study their macroeconomic effects in a dummy-augmented panel autoregressive model. Our results show that an exchange rate appreciation can have strong effects on current account balances. Within three years after the appreciation event, the current account balance on average deteriorates by three percentage points of GDP. This effect occurs through a reduction of savings without a meaningful reduction in investment. Real export growth slows down substantially, while imports remain by and large unaffected. The output costs of appreciation are small and not statistically significant, indicating a shift towards domestic sources of growth. All these effects appear somewhat more pronounced in developing countries.

Keywords: current account adjustment; global imbalances; exchange rate changes (search for similar items in EconPapers)
JEL-codes: F31 F32 F4 N10 O16 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba and nep-opm
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https://www.econstor.eu/bitstream/10419/45375/1/654799237.pdf (application/pdf)

Related works:
Journal Article: The Macroeconomic Effects of Large Exchange Rate Appreciations (2013) Downloads
Journal Article: The Macroeconomic Effects of Large Exchange Rate Appreciations (2013) Downloads
Working Paper: The Macroeconomic Effects of Large Exchange Rate Appreciations (2011) Downloads
Working Paper: The macroeconomic effects of large exchange rate appreciations (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:20113

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