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Exchange Rate Movements and Economic Activity

Author

Listed:
  • Marion Kohler

    (Reserve Bank of Australia)

  • Joseph Manalo

    (Reserve Bank of Australia)

  • Dilhan Perera

    (Reserve Bank of Australia)

Abstract

This article discusses estimates of the effect of movements in the real exchange rate on economic activity and inflation in Australia. The range of estimates suggests that a temporary 10 per cent depreciation of the exchange rate increases the level of GDP temporarily by ¼–½ per cent over one to two years. A permanent 10 per cent real depreciation is estimated to increase the level of GDP by around 1 per cent after two to three years and to increase year-ended inflation by ¼–½ percentage point over the same period. At an industry level, unsurprisingly, activity in trade-exposed industries is found to be more affected than in domestically oriented industries.

Suggested Citation

  • Marion Kohler & Joseph Manalo & Dilhan Perera, 2014. "Exchange Rate Movements and Economic Activity," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 47-54, March.
    • Handle: RePEc:rba:rbabul:mar2014-05
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2014/mar/pdf/bu-0314-5.pdf
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    References listed on IDEAS

    as
    1. Jeremy Lawson & Daniel Rees, 2008. "A Sectoral Model of the Australian Economy," RBA Research Discussion Papers rdp2008-01, Reserve Bank of Australia.
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    Citations

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    Cited by:

    1. Linh T.D. Huynh & Hien Thanh Hoang, 2019. "Effects of exchange rate volatility on bilateral import performance of Vietnam: A dynamic Generalised method of Moments panel approach," International Economic Journal, Taylor & Francis Journals, vol. 33(1), pages 88-110, January.
    2. Osaretin Kayode Omoregie & Sodik Adejonwo Olofin, 2020. "Corporate Performance in Nigeria: The Effect of Oil Price and Exchange Rate Fluctuations," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 170-179.
    3. David Orsmond, 2014. "The RBA’s Business Liaison Program," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 1-6, September.
    4. Chama CHIPETA & Daniel Francois MEYER, 2018. "Trade Openness, FDI and Exchange Rate Effects on Job Creation in South Africa's Tradable Sectors," Journal of Economics and Behavioral Studies, AMH International, vol. 10(4), pages 197-212.
    5. Yin Germaschewski & Jaroslav Horvath & Jiansheng Zhong, 2022. "Oral interventions in the foreign exchange market: evidence from Australia," Empirical Economics, Springer, vol. 62(6), pages 2713-2737, June.

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