The Macroeconomic Effects of Large Exchange Rate Appreciations

56 Pages Posted: 13 Mar 2011

See all articles by Marcus Kappler

Marcus Kappler

Center for European Economic Research (ZEW)

Helmut Reisen

Organization for Economic Co-Operation and Development (OECD) - Development Centre (DEV); WWZ University Basel

Moritz Schularick

University of Bonn - Department of Economics; Centre for Economic Policy Research (CEPR)

Edouard Turkisch

Université Paris

Date Written: 2011

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

JEL Classification: F4, F31, F32, N10, O16

Suggested Citation

Kappler, Marcus and Reisen, Helmut and Schularick, Moritz and Turkisch, Edouard, The Macroeconomic Effects of Large Exchange Rate Appreciations (2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-016, Available at SSRN: https://ssrn.com/abstract=1782804 or http://dx.doi.org/10.2139/ssrn.1782804

Marcus Kappler (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
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Germany
+49 621 1235 157 (Phone)
+49 621 1235 223 (Fax)

Helmut Reisen

Organization for Economic Co-Operation and Development (OECD) - Development Centre (DEV) ( email )

94, rue Chardon Lagache
Paris, 75775
France
(33-1) 45 24 82 82 (Phone)
(33-1) 45 24 79 43 (Fax)

WWZ University Basel ( email )

Petersgraben 51
Basel, CH-4003
Switzerland

HOME PAGE: http://www.unibas.ch

Moritz Schularick

University of Bonn - Department of Economics ( email )

Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Edouard Turkisch

Université Paris

17, rue de la Sorbonne
Paris, IL 75005
France

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