Blog post

Real exchange rates in conflict zones

Several countries experiencing conflict have been able to maintain a stable nominal exchange rate and thereby their real exchange rates were either st

Publishing date
26 November 2015
Zsolt Darvas

We have updated our monthly real effective exchange rate dataset up to November 2015. We have also added some new countries, including various countries experiencing conflict. I therefore thought it would be interesting to post a chart showing the evolution of nominal and real effective exchange rates in a selection of countries experiencing conflict.

Some of these countries were able to maintain a relatively stable nominal effective exchange rate, supported by tight capital control measures, as indicated by the index of Menzie Chinn and Hiro Ito *. As a consequence, real effective exchange rates were primarily driven by the inflation differential with respect to trading partners. In several of these conflict-ridden countries the real effective exchange rate remained broadly stable or even appreciated.

Among the twelve countries included on the chart, only Syria, Russia and Ukraine have recently experienced major nominal currency depreciations.

In Syria, high recent high inflation has even led to a real appreciation of the Syrian Pound, despite the fall in the nominal value of the currency. (Note that the latest Syrian inflation data is for May 2015 as reported here. For calculating the real exchange rate until November, we assumed that the 12-month inflation rate remained unchanged in June-November 2015. Therefore, our Syrian real exchange rate data for June-November 2015 is preliminary.)

High inflation also counteracted some of the impacts of nominal depreciation on the real exchange rate in Russia and Ukraine. In fact, while the current Russian real exchange rate is well below its 2013 value, it does not differ much from the historical average of the past two decades. In Ukraine, on the other hand, the current real rate is well below its historical average.

* According to the Chinn-Ito index, only Russia had a reasonable degree of financial openness among the 12 countries in 2013 (the latest available data). Egypt was even more open financially in most of the 2000s, but major restrictions were introduced from 2008-2013.

Nominal and real effective exchange rate (December 2007=100), January 1995 – November 2015


Source: Bruegel dataset

About the authors

  • Zsolt Darvas

    Zsolt Darvas, a Hungarian citizen, joined Bruegel as a Visiting Fellow in September 2008 and continued his work at Bruegel as a Research Fellow from January 2009, before being appointed Senior Fellow from September 2013. He is also a Senior Research Fellow at the Corvinus University of Budapest.

    From 2005 to 2008, he was the Research Advisor of the Argenta Financial Research Group in Budapest. Before that, he worked at the research unit of the Central Bank of Hungary (1994-2005) where he served as Deputy Head.

    Zsolt holds a Ph.D. in Economics from Corvinus University of Budapest where he teaches courses in Econometrics but also at other institutions since 1994. His research interests include macroeconomics, international economics, central banking and time series analysis.

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