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The co-movement of US stock markets and the dollar

Henri J Bernard and Gabriele Galati

BIS Quarterly Review, 2000, 31-34

Abstract: The relationship between US stock markets and the dollar has been the subject of increased interest recently. In part, this interest reflects the view that portfolio flows may have exerted an important influence on recent movements of the major exchange rates (BIS (2000)). Indeed, while fixed income securities still account for the bulk of cross-border financial transactions, equities markets are playing an increasing role in such transactions. In 1995, cross-border transactions in bonds into and out of the United States amounted to 110% of US GDP, more than five times the corresponding ratio for equity flows. In 1999, cross-border transactions in bonds rose to 126% of US GDP, while transactions in equities tripled and reached 75% of US GDP. From a policy point of view, the interest in this topic reflects in part concerns about the current high valuation of the US stock market and the consequent global deflationary impact should the dollar fall along with that market.

Date: 2000
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