2026/04/06 by Thomas Theobald, Silke Tober
Economics, Econometrics and Finance · #European Monetary and Fiscal Policies #Global Financial Crisis and Policies #Monetary Policy and Economic Impact
paper · doi:10.1017/nie.2026.10090
openalex publication_date 2026/04/06 · openalex created_date 2026/04/07 · openalex updated_date 2026/06/11
Abstract This article explores the macroeconomic consequences of a sharp US dollar depreciation against the backdrop of high US policy uncertainty, fiscal imbalances and growing geopolitical fragmentation. Using the NiGEM global macroeconomic model, we simulate three scenarios: (1) a combined shock to currency and investment risk premia; (2) a broad-based currency risk premium shock and (3) a currency risk premium shock specifically benefiting the euro. The first scenario results in a global slowdown, with pronounced effects on the US economy. In contrast, the latter two scenarios suggest potential gains for the Euro Area, conditional on the euro’s enhanced international role. Realising such gains would require measures to increase the supply and liquidity of Euro Area safe assets. The analysis also highlights risks beyond the model’s scope, including the potential for a financial crisis triggered by a sudden loss of confidence in the US dollar.