Foreign Safe Asset Demand and the Dollar Exchange Rate

Zhengyang Jiang, Arvind Krishnamurthy and Hanno Lustig

Journal of Finance, 2021, vol. 76, issue 3, 1049-1089

Abstract: We develop a theory that links the U.S. dollar's valuation in FX markets to the convenience yield that foreign investors derive from holding U.S. safe assets. We show that this convenience yield can be inferred from the Treasury basis, the yield gap between U.S. government and currency‐hedged foreign government bonds. Consistent with the theory, a widening of the basis coincides with an immediate appreciation and a subsequent depreciation of the dollar. Our results lend empirical support to models that impute a special role to the United States as the world's provider of safe assets and the dollar as the world's reserve currency.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

Downloads: (external link)
https://doi.org/10.1111/jofi.13003

Related works:
Working Paper: Foreign Safe Asset Demand and the Dollar Exchange Rate (2019)
Working Paper: Foreign Safe Asset Demand and the Dollar Exchange Rate (2018)
Working Paper: Foreign Safe Asset Demand and the Dollar Exchange Rate (2018)
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:bla:jfinan:v:76:y:2021:i:3:p:1049-1089

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().