EXCHANGE RATE and US MACROECONOMY: EVIDENCE from the FACTOR-AUGMENTED VECTOR AUTOREGRESSIVE MODEL
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.
Singapore Economic Review
Digital Object Identifier (DOI)
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