The Broad Dollar Exchange Rate as an EME Risk Factor

14 Pages Posted: 29 Mar 2022

See all articles by Boris Hofmann

Boris Hofmann

Bank for International Settlements (BIS) - Monetary and Economic Department

Taejin Park

Bank for International Settlements (BIS)

Date Written: December 7, 2020

Abstract

US dollar appreciation is associated with a darkening of the economic outlook for emerging market economies (EMEs). Using data from 21 EMEs, we find that a 1 percentage point (ppt) appreciation shock to the dollar against a broad basket of currencies dampens the growth outlook by over 0.3 ppt and growth-at-risk (the lowest 5% of growth outcomes) by 0.6 ppt. Dollar appreciation adversely affects investment growth-at-risk in particular and even export growth-at-risk, indicating that global financial conditions play a key role. Indeed, the negative impact is significantly larger in countries with high dollar debt or high foreign presence in local currency bond markets.

JEL Classification: F31, F34, F36, F41, F44

Suggested Citation

Hofmann, Boris and Park, Taejin, The Broad Dollar Exchange Rate as an EME Risk Factor (December 7, 2020). Available at SSRN: https://ssrn.com/abstract=4051584 or http://dx.doi.org/10.2139/ssrn.4051584

Boris Hofmann (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Taejin Park

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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