Although currency adjustment is often proposed as a policy tool to reduce current account imbalances, there is no consensus regarding the macroeconomic effects. In this paper we study the macroeconomic aftermath of large exchange rate appreciations. Using a sample of 128 countries over the period 1960-2008, we identify 25 episodes of large nominal and real appreciations shocks. We use narrative identification of exogenous appreciation episodes and study the macroeconomic effects in a dummy-augmented panel autoregressive model. Our results indicate that exchange rate appreciations tend to have strong effects on current account balances. Within 3 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, but the output costs are small and not statistically significant. All these effects appear somewhat more pronounced in developing countries. © 2012 Springer Science+Business Media New York.
CITATION STYLE
Kappler, M., Reisen, H., Schularick, M., & Turkisch, E. (2013). The Macroeconomic Effects of Large Exchange Rate Appreciations. Open Economies Review, 24(3), 471–494. https://doi.org/10.1007/s11079-012-9246-4
Mendeley helps you to discover research relevant for your work.