Global Risk and the Dollar

Müller, Gernot, Georgios Georgiadis and Ben Schumann
Authors registered in the RePEc Author Service: Gernot J. Müller

No 16245, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: How does global risk impact the world economy? In taking up this question, we focus on the dollar’s role in the international adjustment mechanism. First, we rely on high-frequency surprises in the price of gold to identify the effects of global risk shocks in a Bayesian Proxy VAR model. They cause a synchronized contraction of global economic activity and appreciate the dollar. Other key financial indicators adjust in line with predictions of recent theoretical work. Second, we illustrate through counterfactuals that the dollar appreciation amplifies the adverse impact of global risk shocks outside of the US via a financial channel.

Keywords: Us dollar; Safe-haven currencies; Risk shocks; Trade channel; Financial channel; Bayesian proxy structural var; Minimum relative entropy; Counterfactual; Monetary policy (search for similar items in EconPapers)
JEL-codes: F31 F41 F44 (search for similar items in EconPapers)
Date: 2021-06
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Related works:
Journal Article: Global risk and the dollar (2024)
Working Paper: Global Risk and the Dollar (2023)
Working Paper: Global risk and the dollar (2021)
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