Currencies in Turbulence: Exploring the Impact of Natural Disasters on Exchange Rates
IMF Working Papers, August 30, 2024
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Bibliographic details
- Authors: Anh Thi Ngoc Nguyen, Ha Nguyen
- Published: August 30, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400289385.001
Research question and dataset
- Investigates the impact of natural disasters on exchange rate movements across country groups and exchange rate regimes.
- Empirical approach: panel local projection model.
- High-frequency monthly dataset covering 177 countries during 1970M1-2019M12.
Key findings
- Exchange rate movements are more sensitive to natural disasters in emerging markets and developing countries (EMDEs) than in advanced economies (AEs).
- Exchange rate reactions to natural shocks depend on exchange rate regimes adopted by EMDEs.
- On average, both nominal and real exchange rates could depreciate up to 6 percents two years after the disasters in non-pegged regimes.
- EMDEs with flexible exchange rate regimes would observe a faster recovery through nominal and real depreciations.
- Large exchange rate fluctuations caused by natural disaster shocks entail policy implications that EMDEs should be mindful about.
Policy-relevant implications and considerations
- Flexible exchange rate regimes may facilitate faster recoveries via nominal and real depreciations following natural disasters.
- Policymakers in EMDEs should balance the potential recovery benefits of flexible regimes against risks associated with large exchange rate fluctuations after natural disaster shocks.
Keywords and subject focus
- Subject: Environment, Exchange rate adjustments, Exchange rate arrangements, Exchange rates, Foreign exchange, Natural disasters, Nominal effective exchange rate
- Keywords: Exchange rate adjustments, Exchange rate arrangements, exchange rate movement, exchange rate reaction, exchange rate regimes, exchange rate response, exchange rate volatility, exchange rates, fixed exchange rate regimes, flexible exchange rate regimes, Global, natural disaster shock, Natural disasters, Nominal effective exchange rate, structural changes
Anh Thi Ngoc Nguyen and Ha Nguyen, "Currencies in Turbulence: Exploring the Impact of Natural Disasters on Exchange Rates", IMF Working Paper No. 2024/186 (August 30, 2024), DOI: https://doi.org/10.5089/9798400289385.001
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