Political Risk, National Defense and the Dollar

Robert Ayanian

Economic Inquiry, 1988, vol. 26, issue 2, 345-51

Abstract: The Federal Reserve Board's trade-weighted real exchange rate index is highly correlated with the U.S. defense budget share of GNP. This paper provides evidence that the correlation is not spurious. Po litical risk associated with holding wealth in the United States vari es inversely with U.S. military security and, due to the Soviet milit ary threat to the West, is a major argument in foreign asset demand f unctions. Copyright 1988 by Oxford University Press.

Date: 1988
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