Łukasz Rachel's picture
Affiliation: 
UCL

Voting history

Euro weakness in 2022

Question 1: What was the main cause for the euro’s decline relative to the US dollar in 2022?

Answer:
Financial factors
Confidence level:
Not confident at all
Comment:
All three factors likely played a role. US is a net energy exporter so it actually experienced a positive terms of trade shock; quite the opposite for Europe. However, I think the perception has been more dire than reality -- European economies dealt with energy disruptions better than expected, and the catastrophic scenarios did not come about. Perhaps that is why the euro has straightened in recent months. Research by Mukhin and Itskhoki suggests financial factors are important, and my sense this episode is no exception. Monetary policy landscape is more subtle in the eurozone, and mon pol differences likely played a role too. Ultimately we're talking about exchange rates, so confidence in any decomposition remains low.

Question 2: Should the ECB respond to movements in the euro-dollar exchange rate of the nature observed in 2022?

Answer:
No
Confidence level:
Confident
Comment:
Focusing on maintaining monetary stability by using the monetary policy toolkit and enhancing financial stability with appropriate macroprudential and microprudential regulation should be sufficient. I worry about the long-term consequences of directly intervening in the exchange rate.