Currencies: Exchange rate significance for growth – Goldman Sachs


Research Team at Goldman Sachs, notes that the foreign exchange markets have shown some outsized moves n in recent years, and many macroeconomic models suggest that these moves should have large effects on growth.

Key Quotes

“But the recent experience casts some doubt on this prediction, as changes in net exports after large exchange rate moves have often fallen short of expectations.

We therefore take another look at the effects of exchange rate changes on exports, imports, and GDP, and how they have evolved over time. Using a panel of 23 advanced economies since 1980, we first estimate the effects of exchange rate movements on export and import prices, and then the effects of these price changes on export and import volumes.

Historically, exchange rate movements have had large effects on net trade. We find that a 10% real depreciation boosted net exports by an average of 1.3% of GDP until the late 1990s. But the effect has averaged only 0.6% of GDP since then, all because of a smaller impact of export and import prices on trade volumes. The effects are bigger in Europe and Canada than in the US and Japan.

Our results suggest that the net export effect from exchange rate movements may be a little smaller than generally believed. Potential implications are that 1) the pound sterling depreciation may provide only a partial growth offset to the Brexit shock, 2) Japan may continue to “muddle through” despite the sharp yen appreciation this year, and 3) renewed dollar appreciation should be a manageable drag on US growth.”

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD: Warming up or the RBA

AUD/USD: Warming up or the RBA

AUD/USD added to the move higher and rose to new two-month peaks near 0.6370 on the back of the soft tone in the US Dollar and rising expectation ahead of the RBA’s interest rate decision.

AUD/USD News
EUR/USD: Next target comes at 1.0530

EUR/USD: Next target comes at 1.0530

EUR/USD traded in an inconclusive fashion amid the equally vacillating development in the Greenback, returning to the sub-1.0500 region following reduced trading conditions in response to the US Presidents’ Day holiday.

EUR/USD News
Gold resumes the upside around $2,900

Gold resumes the upside around $2,900

Gold prices leave behind Friday's marked pullback and regain some composure, managing to retest the $2,900 region per ounce troy amid the generalised absence of volatility on US Presidents' Day holiday.

Gold News
Ethereum Price Forecast: ETH outperforms top cryptocurrencies, sees $1.1 billion in stablecoin inflows

Ethereum Price Forecast: ETH outperforms top cryptocurrencies, sees $1.1 billion in stablecoin inflows

Ethereum (ETH) is up 1% on Monday, stretching its weekly gains to nearly 3%, while other top blockchains experience losses. The top altcoin's recent outperformance can be attributed to rising stablecoin inflows and investment from institutional investors through ETH exchange-traded funds (ETFs).

Read more
Bitcoin Price Forecast: BTC stalemate soon coming to an end

Bitcoin Price Forecast: BTC stalemate soon coming to an end

Bitcoin price has been consolidating between $94,000 and $100,000 for almost two weeks. Amid this consolidation, investor sentiment remains indecisive, with US spot ETFs recording a $580.2 million net outflow last week, signaling institutional demand weakness.

Read more
The Best Brokers of the Year

The Best Brokers of the Year

SPONSORED Explore top-quality choices worldwide and locally. Compare key features like spreads, leverage, and platforms. Find the right broker for your needs, whether trading CFDs, Forex pairs like EUR/USD, or commodities like Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures

Best Brokers of 2025