The macroeconomic effects of large exchange rate appreciations

Kappler, Marcus ; Reisen, Helmut ; Schularick, Moritz ; Turkisch, Edouard

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    URN: urn:nbn:de:bsz:180-madoc-31440
    Document Type: Working paper
    Year of publication: 2011
    Publication language: English
    Institution: Sonstige Einrichtungen > Zentrum für Europ. Wirtschaftsforschung (ZEW)
    MADOC publication series: Veröffentlichungen des ZEW (Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
    Subject: 330 Economics
    Classification: JEL: F4 F31 F32 N10 O16
    Subject headings (SWD): Wechselkurspolitik , Außenhandel , Wirtschaftswachstum , Bruttoinlandsprodukt , Leistungsbilanz , Schwellenländer
    Keywords (English): current account adjustment , global imbalances , exchange rate changes
    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.
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