Currencies in Turbulence: Exploring the Impact of Natural Disasters on Exchange Rates

37 Pages Posted: 9 Sep 2024

See all articles by Anh Thi Ngoc Nguyen

Anh Thi Ngoc Nguyen

International Monetary Fund (IMF)

Ha Nguyen

International Monetary Fund (IMF)

Abstract

This paper investigates the impact of natural disasters on exchange rate movements in different country groups with different exchange rate regimes. Using a panel local projection model with a high-frequency monthly dataset of 177 countries during 1970M1-2019M12, we find that exchange rate movements are more sensitive to natural disasters in emerging markets and developing countries (EMDEs) than in advanced economies (AEs). Furthermore, exchange rate reactions to natural shocks depend on exchange rate regimes adopted by EMDEs. On average, both nominal and real exchange rates could depreciate up to 6 percents two years after the disasters in non-pegged regimes. Our findings suggest that EMDEs with flexible exchange rate regimes would observe a faster recovery through nominal and real depreciations, although they should be mindful about policy implications that may arise from large exchange rate fluctuations caused by natural disaster shocks.

Keywords: Natural disasters, exchange rates, exchange rate regimes, flexible exchange rate regimes, fixed exchange rate regimes, structural changes

JEL Classification: F31, Q54

Suggested Citation

Nguyen, Anh Thi Ngoc and Nguyen, Ha, Currencies in Turbulence: Exploring the Impact of Natural Disasters on Exchange Rates. IMF Working Paper No. 2024/186, Available at SSRN: https://ssrn.com/abstract=4946568 or http://dx.doi.org/10.5089/9798400288081.001

Anh Thi Ngoc Nguyen (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ha Nguyen

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
20
Abstract Views
142
PlumX Metrics