The Impact of Exchange Rate Shocks on Sectoral Activity and Prices in the Euro Area

47 Pages Posted: 22 Aug 2007

See all articles by Elke Hahn

Elke Hahn

European Central Bank (ECB)

Date Written: August 2007

Abstract

This paper investigates the impact of exchange rate shocks on sectoral activity and prices in the euro area. Using a VAR framework it provides evidence on the magnitude and speed of the impact of exchange rate shocks on activity in all main euro area sectors and on activity and producer prices in a large set of sub-sectors of industry (excluding construction). Substantial heterogeneity in the impact of exchange rate shocks across sectors is identified as regards both activity and prices. According to our results, among the main euro area sectors an exchange rate shock has the strongest impact on value added in industry (excl. construction) and trade and transportation services. Within industry (excl. construction), among its main sub-sectors all of the impact on production comes via manufacturing, while among the main industrial groupings (MIGs), capital and intermediate goods production respond most strongly. As regards the impact on prices, among the sub-sectors of industry (excl. construction), the impact is largest on producer prices in electricity, gas and water supply, and in line with this producer prices in MIG energy are most sensitive to an exchange rate shock.

Keywords: Exchange Rate Pass-Through, Sectoral Activity and Prices, Euro Area

JEL Classification: C32, E31

Suggested Citation

Hahn, Elke, The Impact of Exchange Rate Shocks on Sectoral Activity and Prices in the Euro Area (August 2007). ECB Working Paper No. 796, Available at SSRN: https://ssrn.com/abstract=1003971 or http://dx.doi.org/10.2139/ssrn.1003971

Elke Hahn (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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