The Dollar's Imperial Circle

Ozge Akinci, Gianluca Benigno, Serra Pelin and Jon Turek

No 18511, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In this paper, we highlight a new channel through which dollar fluctuations can become a self-fulfilling pro-cyclical force. We call this mechanism Imperial Circle as it makes the dollar the dominant macroeconomic variable in the context of the current international monetary system. At the core of it, there is a fundamental asymmetry between the shrinking exposure of the “real†U.S. economy to global developments versus the growing global role of the U.S. dollar. Dollar appreciation leads to a decline in global economic activity, which in turn benefits, in relative terms, the dollar itself, reinforcing the initial appreciation and its effects.

Keywords: International monetary system; Trade spillovers (search for similar items in EconPapers)
JEL-codes: E32 E44 F41 (search for similar items in EconPapers)
Date: 2023-10
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Related works:
Journal Article: The Dollar’s Imperial Circle (2024)
Working Paper: The Dollar’s Imperial Circle (2023)
Working Paper: The Dollar’s Imperial Circle (2022)
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