The Nature of the Shock Matters: Some Model-Based Results on the Macroeconomic Effects of Exchange Rate

  • Sophie Haincourt
Part of the Financial and Monetary Policy Studies book series (FMPS, volume 46)


Exchange rate fluctuations have been particularly large since mid-2014, with the nominal effective exchange rate of the Dollar appreciating 22% between July 2014 and December 2016, well above normal fluctuation range. This article attempts to measure the impact of currency appreciation 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 going from mid-2014 to December 2016, we show that the initial appreciation of the Dollar (from July 2014 to April 2015), coming from activity gaps and divergence in monetary policy expectations, choke 0.3 pp off US GDP growth, while the following phase of the currency appreciation, stemming from a fall in the Dollar risk premium would have been neutral, and even slightly positive, to US growth. When comparing the US with the euro area as regards the impact on growth, we get that the euro area is more sensitive than the US to a currency appreciation. As a result, a sustained rise in the currency could prove more challenging for the Euro area than for the US.


  1. Bussière M, Chinn M, Ferrara L, Heipertz J (2018) The new Fama puzzle, NBER working paper No. 24342, February 2018Google Scholar
  2. Bussière M, Delle Chiaie S, Peltonen TA (2013) Exchange rate pass-through in the global economy: the role of emerging market economies. Banque de France WP No. 424Google Scholar
  3. Bussière M, Gaulier G, Steingress W (2016) Global trade flows: revisiting the exchange rate elasticities. Banque de France WP No. 608Google Scholar
  4. Bussière M, Lopez C, Tille C (2014) Do real exchange rate appreciations matter for growth? CEPR Discussion Papers No. 9938CrossRefGoogle Scholar
  5. 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, 09/2017Google Scholar
  6. Fernald J, Mertens T, Shultz P (2017) Has the Dollar become more sensitive to interest rates? FRBSF Econ Lett 2017–18Google Scholar
  7. Fisher S (2015) The transmission of exchange rate changes to output and inflation. In: Remarks for the monetary policy implementation and transmission in the post-crisis period conference, Board of Governors of the Federal Reserve System, Nov 2015Google Scholar
  8. Forbes K (2014) The economic impact of sterling’s recent moves: more than a midsummer night’s dream. Speech given in London, Oct 2014Google Scholar
  9. Forbes K (2015) Much ado about something important: How do exchange rate movements affect inflation? In: Speech given at the 47th money, macro and finance research group annual conference, Cardiff, Sept 2015Google Scholar
  10. Gopinath G (2015) The international price system. In: Federal Reserve Bank of Kansas City economic symposium, Jackson Hole, Aug 2015Google Scholar
  11. International Monetary Fund (2015) Exchange rates and trade flows: disconnected? WEO Chapter 3, Oct 2015Google Scholar
  12. Kirby S, Meaning J (2014) Exchange rate pass-through: a view from a global structural model. National Institute Economic Review No. 230, Nov 2014CrossRefGoogle Scholar
  13. MacDonald R, Taylor M (1992) Exchange rate economics: a survey. IMF Staff Pap 39(1):1–57CrossRefGoogle Scholar

Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Banque de FranceParisFrance

Personalised recommendations