Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-02T20:58:08.034Z Has data issue: false hasContentIssue false
  • English
  • Français

The nature of the shock matters: NiGEM estimations of the macroeconomic effects of recent dollar and euro fluctuations

Published online by Cambridge University Press:  01 January 2020

Sophie Haincourt
Sophie Haincourt*
Affiliation:
Banque de France
*
E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Exchange rate fluctuations have been particularly large since mid-2014, displaying divergent developments across the period. The nominal effective exchange rate of the dollar has appreciated by 15 per cent since June 2014, masking a 25 per cent appreciation to December 2016 followed by a depreciation of 8 per cent. Changes in the euro have turned positive after being negative. This article attempts to measure the impact of currency changes on domestic activity, accounting for the source of fluctuations. More specifically, by using the multi-country structural model NiGEM, we show that different types of exchange rate shocks can have different macroeconomic outcomes. Focusing on the period from January 2017 to February 2018, we show that the depreciation of the dollar, stemming mostly from changes in sentiment in foreign exchange markets, would in fact have been detrimental to US growth. A weaker currency, in this particular case, turned out to be no recipe for stronger growth. Similarly, the appreciation of the euro, triggered by a fall in the risk premium of the currency, may have been positive for growth. There are caveats to the exercise, but the results are nonetheless consistent with previous research pointing to the importance of the nature of the exchange rate shocks in estimating their impact on prices and growth.

Keywords

Exchange rate pass-throughglobal structural modelsF41E27
Type
Research Articles
Information
National Institute Economic Review , Volume 244 , May 2018 , pp. R30 - R38
Copyright
Copyright © 2018 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

This article draws on research to be published in June 2018 (Ferrara et al., 2018). Fabien Lebreton provided excellent statistical assistance. The article benefited from comments by Laurent Ferrara (Banque de France).

References

Bussière, M., Delle Chiaie, S. and Peltonen, T.A. (2013), ‘Exchange rate pass-through in the global economy: the role of emerging market economies’, Banque de France WP No. 424.Google Scholar
Bussière, M., Gaulier, G. and Steingress, W. (2016), ‘Global trade flows: revisiting the exchange rate elasticities’, Banque de France WP No. 608.Google Scholar
Bussière, M., Lopez, C. and Tille, C. (2014), ‘Do real exchange rate appreciations matter for growth?’, CEPR Discussion Paper No. 9938.Google Scholar
Coeuré, B. (2017), ‘The transmission of the ECB's monetary policy in standard and non-standard times’, Monetary policy in non-standard times workshop, Frankfurt am Main, September 2017.Google Scholar
Ferrara, L., Hernando, I. and Marconi, D. (eds), (2018), International Macroeconomics in the Wake of the Global Financial Crisis, Springer (forthcoming, June).CrossRefGoogle Scholar
Fisher, S. (2015), ‘US inflation developments’, speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, 08/2015, available at http://www.federalreserve.gov/newsevents/speech/fischer20150829a.htm.Google Scholar
Forbes, K. (2014), ‘The economic impact of sterling's recent moves: more than a midsummer night's dream’, speech given in London, October 2014.Google Scholar
Forbes, K. (2015), ‘Much ado about something important: how do exchange rate movements affect inflation?’, speech given at the 47th Money, Macro and Finance Research Group Annual Conference, Cardiff, September 2015.Google Scholar
Gopinath, G. (2015), ‘The international price system’, Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, August 2015.Google Scholar