Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269091 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2684
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper quantifies the pass-through of a US dollar appreciation on trade variables and domestic financial conditions in a panel of 34 countries. Pass-through coefficients are highly shock-dependent: if the appreciation is driven by a US expansionary shock, the positive effects of stronger global demand - the "real" channel-dominate the negative effects of a stronger dollar - the "exchange rate" channel. As a result, a positive US demand (supply)-drive appreciation expands global trade and stock valuations up to 2.2 (2.5) and 8% (15%) respectively, while if the appreciation is driven by a monetary policy shock the sign is opposite, leading to a contraction in the order of 2.5% (3%) depending on the country. The coefficients also exhibit a large degree of cross-country heterogeneity, we find that financial and trade exposure to the US, trade openness and USD invoicing shares explain up to 60% of the USD pass-through after demand and supply shocks. Crosscountry differences, instead, are not explained by dollar invoicing if monetary policy or risk shocks determine USD movements. We explain this finding with the endogenous policy reaction of monetary authorities in emerging markets that stabilizes the exchange rate against the dollar and weakens the invoicing channel of dollar shocks.
Subjects: 
Exchange rate
USD
pass-through
VAR
JEL: 
F31
F41
F44
E44
E32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5268-2
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.