Global risk and the dollar

Georgios Georgiadis, Gernot Müller and Ben Schumann

Journal of Monetary Economics, 2024, vol. 144, issue C

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 vector autoregressive 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 world 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)
Date: 2024
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Global Risk and the Dollar (2023)
Working Paper: Global Risk and the Dollar (2021)
Working Paper: Global risk and the dollar (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:144:y:2024:i:c:s0304393224000023

DOI: 10.1016/j.jmoneco.2024.01.002

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