The Non-U.S. Bank Demand for U.S. Dollar Assets

Tobias Adrian and Peichu Xie

No 2020/101, IMF Working Papers from International Monetary Fund

Abstract: The USD asset share of non-U.S. banks captures the demand for dollars by these investors. An instrumental variable strategy identifies a causal link from the USD asset share to the USD exchange rate. Cross-sectional asset pricing tests show that the USD asset share is a highly significant pricing factor for carry trade strategies. The USD asset share forecasts the dollar with economically large magnitude, high statistical significance, and large explanatory power, both in sample and out of sample, pointing towards time varying risk premia. It takes 2-5 years for exchange rate risk premia to normalize in response to demand shocks.

Keywords: WP; asset demand; asset share; nominal exchange rate; math display; Exchange Rate Disconnect; Safe Asset Demand; Intermediary Asset Pricing; U.S. dollar; Treasury premium; USD assets; USD asset demand; Exchange rates; Currencies; Exchange rate adjustments; Estimation techniques; Financial statements; Global; U.S. bank (search for similar items in EconPapers)
Pages: 46
Date: 2020-06-19
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Citations: View citations in EconPapers (2)

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Working Paper: The Non-U.S. Bank Demand for U.S. Dollar Assets (2020)
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