The rapid change in the euro/dollar exchange rate brings us back to the early/mid 2000s and reminds me of one old study I did with other colleagues of OFCE (SciencesPo) in 2004. We are now back to the same exchange rate as then: the graph below is a good example of either:
- a structural break in the trade patterns (the issue then was the post-1998 opening of China to trade)
- the difficulty for exchange market participants to form expectations. This is a very well known puzzle in economics & finance (see e.g. Barbara Rossi, 2013, "Exchange Rate Predictability", in the Journal of Economic Literature) and has been attributed, inter alia by Rob Shiller and George Akerloff, to so-called Animal Spirits.
This is taken from the Lettre de l'OFCE 252, I am thinking that it might be interesting to do the same study with updated data. But in fact Bruno Ducoudré and Eric Heyer published in November 2014 a study of the impact of the variation of the exchange rate for European economies. They found Spain had to gain most.