Global risk and the dollar

Georgios Georgiadis, Gernot Müller and Ben Schumann

No 2628, Working Paper Series from European Central Bank

Abstract: How does global risk impact the world economy? In taking up this question, we focus on the dollar’s role in the international adjustment mechanism. First, we rely on high-frequency surprises in the price of gold to identify the effects of global risk shocks in a Bayesian Proxy VAR model. They cause a synchronized contraction of global economic activity and appreciate the dollar. Other key financial indicators adjust in line with pre-dictions of recent theoretical work. Second, we illustrate through counterfactuals that the dollar appreciation amplifies the adverse impact of global risk shocks outside of the US via a financial channel. JEL Classification: F31, F42, F44

Keywords: Bayesian proxy structural VAR; counterfactual; global risk shocks; minimum relative entropy; US dollar exchange rate (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-cwa, nep-opm and nep-rmg
Note: 2435756
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Global risk and the dollar (2024)
Working Paper: Global Risk and the Dollar (2023)
Working Paper: Global Risk and the Dollar (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212628

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