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US shocks and global exchange rate configurations

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  • Fratzscher, Marcel

Abstract

The paper analyses the heterogeneity in the link between macroeconomic fundamentals and exchange rates. For a set of important US-specific economic shocks, it shows that such shocks have exerted a remarkably heterogeneous effect on global exchange rate configurations over the past 25 years. Despite a significant decline over time, this heterogeneity remains high as primarily currencies of a few industrialized countries provide the largest contribution to the adjustment of the effective US dollar exchange rate. The paper finds that this heterogeneity is not only due to policy choices of inflexible exchange rate regimes, but to an important extent due to market forces, in particular business cycle synchronization and the degree of financial integration - foremost in portfolio investment - but not to trade. The findings have implications for a potential unwinding of global imbalances and future exchange rate adjustment, as well as for monetary policy choices in emerging market economies. JEL Classification: F31, F4, G1

Suggested Citation

  • Fratzscher, Marcel, 2007. "US shocks and global exchange rate configurations," Working Paper Series 835, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2007835
    Note: 335955
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp835.pdf
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    Cited by:

    1. Andrea Fracasso & Stefano Schiavo, 2009. "Trade-imbalances networks and exchange rate adjustments: the paradox of a new Plaza. The XIVth Spring Meeting of Young Economists (SMYE-2009), Istanbul, April 2009," Post-Print hal-01053278, HAL.
    2. Michael Ehrmann & Marcel Fratzscher, 2009. "Global Financial Transmission of Monetary Policy Shocks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 739-759, December.
    3. Fratzscher, Marcel, 2009. "What explains global exchange rate movements during the financial crisis?," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1390-1407, December.
    4. repec:hal:spmain:info:hdl:2441/10028 is not listed on IDEAS
    5. Elbeck, Matt, 2010. "Advancing the design of a dynamic petro-dollar currency basket," Energy Policy, Elsevier, vol. 38(4), pages 1938-1945, April.
    6. Fracasso, Andrea & Schiavo, Stefano, 2009. "Global imbalances, exchange rates adjustment and the crisis: Implications from network analysis," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 601-619, September.

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    More about this item

    Keywords

    cross-rates; exchange rate; global distribution; heterogeneity; shocks; transmission channels.; US dollar;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets

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