The Dollar’s Imperial Circle

Ozge Akinci, Gianluca Benigno, Serra Pelin and Jonathan Turek

No 1045, Staff Reports from Federal Reserve Bank of New York

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: Dynamic Stochastic General Equilibrium (DSGE) models; global supply chains; dollar currency pricing; trade; spillover (search for similar items in EconPapers)
JEL-codes: E32 E44 F41 (search for similar items in EconPapers)
Pages: 40
Date: 2022-12-01
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-ifn and nep-mon
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Citations: View citations in EconPapers (1)

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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 (2023)
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