What explains global exchange rate movements during the financial crisis? |
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Authors: | Marcel Fratzscher |
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Affiliation: | European Central Bank, Kaiserstrasse 29, D–60311 Frankfurt/Main, Germany;Barclays Global Investors, Murray House, Royal Mint Court, London EC3N 4HH; mark.taylor@barclaysglobal.com, 44 (0) 20 7668 8000 |
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Abstract: | A striking and unexpected feature of the financial crisis has been the sharp appreciation of the US dollar against virtually all currencies globally. The paper finds that negative US-specific macroeconomic shocks during the crisis have triggered a significant strengthening of the US dollar, rather than a weakening. Macroeconomic fundamentals and financial exposure of individual countries are found to have played a key role in the transmission process of US shocks: in particular countries with low FX reserves, weak current account positions and high direct financial exposure vis-à-vis the United States have experienced substantially larger currency depreciations during the crisis overall, and to US shocks in particular. |
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