Global Risk and the Dollar

Georgios Georgiadis, Gernot Müller and Ben Schumann

No 2057, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: The dollar is a safe-haven currency and appreciates when global risk goes up. We investigate the dollar’s role for the transmission of global risk to the world economy within a Bayesian proxy structural vectorautoregressive model. We identify global risk shocks using high-frequency asset-price surprises around narratively selected events. Global risk shocks appreciate the dollar, induce tighter global financial conditions and a synchronized contraction of global economic activity. We benchmark these effects against counterfactuals in which the dollar does not appreciate. In the absence of dollar appreciation, the contractionary impact of a global risk shock is much weaker, both in the rest of the world and the US. For the rest of the world, contractionary financial channels thus dominate expansionary expenditure switching when global risk rises and the dollar appreciates.

Keywords: Dollar exchange rate; global risk shocks; international transmission; Bayesian proxy structural VAR (search for similar items in EconPapers)
JEL-codes: F31 F42 F44 (search for similar items in EconPapers)
Pages: 25, 93 p.
Date: 2023
New Economics Papers: this item is included in nep-fdg, nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.885705.de/dp2057.pdf (application/pdf)

Related works:
Journal Article: Global risk and the dollar (2024)
Working Paper: Global Risk and the Dollar (2021)
Working Paper: Global risk and the dollar (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp2057

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().