Exchange Rate Reconnect

Andrew Lilley; Matteo Maggiori; Brent Neiman; Jesse Schreger

doi:10.1162/rest_a_00978

Exchange Rate Reconnect

Andrew Lilley¹; Matteo Maggiori²; Brent Neiman³; Jesse Schreger⁴

¹ Harvard Business School · ² Stanford Graduate School of Business, NBER, and CEPR · ³ University of Chicago Booth School of Business and NBER · ⁴ Columbia Business School and NBER

The Review of Economics and Statistics 2022

Abstract It is surprisingly difficult to find economic variables that strongly comove with exchange rates, a phenomenon codified in a large literature as “exchange rate disconnect.” We demonstrate that a variety of common proxies for global risk appetite, which did not comove with exchange rates prior to 2007, have provided significant in-sample explanatory power for currencies since then. Furthermore, during the 2007–2012 period, U.S. purchases of foreign bonds were highly correlated with these risk measures and with exchange rates. Our results support the narrative that the U.S. dollar's role as an international and safe-haven currency has surged since the global financial crisis.

DOI: 10.1162/rest_a_00978
Volume: 104 (4)
Pages: 845-855
Language: en
Export: BibTeX
Sources: crossref openalex