Dollar Safety and the Global Financial Cycle

Zhengyang Jiang; Arvind Krishnamurthy; Hanno Lustig

doi:10.1093/restud/rdad108

Review of Economic Studies Vol. 91 No. 5 2024

Dollar Safety and the Global Financial Cycle

Zhengyang Jiang¹; Arvind Krishnamurthy²; Hanno Lustig²

¹ Kellogg School of Management, Northwestern University and NBER , USA · ² NBER and Graduate School of Business, Stanford University , USA

Abstract

We develop a model of the global financial cycle with one key ingredient: the international demand for safe dollar assets. The model matches patterns of dollar borrowing and currency mismatch, the U.S. external balance sheet, exorbitant privilege, spillovers of the U.S. monetary policy to the rest of the world, and the dollar as a global risk factor. In doing so, we lay out a novel transmission mechanism through which the U.S. monetary policy affects the currency market and the global economy. The global financial cycle is a dollar cycle.

DOI: 10.1093/restud/rdad108
Volume: 91
Issue: 5
Pages: 2878-2915
Language: en
Sources: openalex bibtex:phds-export.bib crossref

Dollar Safety and the Global Financial Cycle

Abstract

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