2024/05/30 by Rohan Kekre, Moritz Lenel · 2 citations
Economics, Econometrics and Finance · #Monetary Policy and Economic Impact #Global Financial Crisis and Policies #Economic theories and models
paper · doi:10.1257/aer.20211319
We study a business cycle model of the international monetary system featuring a time-varying demand for safe dollar bonds, greater risk-bearing capacity in the United States than the rest of the world, and nominal rigidities. A flight to safety generates a dollar appreciation and decline in global output. Dollar bonds thus command a negative risk premium, and the United States holds a levered portfolio of capital financed in dollars. We quantify the effects of safety shocks and heterogeneity in risk-bearing capacity for global macroeconomic volatility, US external adjustment, and policy transmission, as of dollar swap lines. (JEL E32, E43, E44, E52, F44, G11, G15)