The Flight to Safety and International Risk Sharing

Rohan Kekre and Moritz Lenel

No 29238, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 U.S. 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 U.S. 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; U.S. external adjustment; and policy transmission, as of dollar swap lines.

JEL-codes: E44 F44 G15 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-isf, nep-mac, nep-mon, nep-opm and nep-ore
Note: AP EFG IFM ME
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Citations: View citations in EconPapers (19)

Published as Rohan Kekre & Moritz Lenel, 2024. "The Flight to Safety and International Risk Sharing," American Economic Review, vol 114(6), pages 1650-1691.

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