EXCHANGE RATE and US MACROECONOMY: EVIDENCE from the FACTOR-AUGMENTED VECTOR AUTOREGRESSIVE MODEL
Document Type
Article
Publication Date
6-1-2017
Abstract
This paper aims to examine the macroeffects of exchange rate movements on a wide array of real economic variables in the US in a unifying model. By employing the non-linear factor-augmented vector autoregressive (FAVAR) model with simulation methods, we could trace the effects of exchange rate appreciation and depreciation on a wide array of macroeconomic variables through the impulse response function (IRF). The main findings are: (1) In response to dollar depreciation, import price index (IMP), producer price index (PPI) and CPI increase significantly. The pass-through ratio declines along the distribution chain. (2) Merchandise trade balance, current account balance and output improve facing dollar depreciation. (3) Savings decreases in response to dollar depreciation. (4) Employment and average hourly earnings increase in times of exchange rate depreciation and vice versa. The effects on macroeconomy from appreciation and depreciation seem symmetric. Many other interesting findings are also documented.
Publication Title
Singapore Economic Review
Volume
62
Issue
2
First Page
483
Last Page
508
Digital Object Identifier (DOI)
10.1142/S0217590815500691
ISSN
02175908
Citation Information
AN, REN, X., LI, H., & XU, J. (2017). EXCHANGE RATE AND US MACROECONOMY: EVIDENCE FROM THE FACTOR-AUGMENTED VECTOR AUTOREGRESSIVE MODEL. Singapore Economic Review, 62(2), 483–508. https://doi.org/10.1142/S0217590815500691