Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202926 
Year of Publication: 
2018
Series/Report no.: 
Working Papers No. 18-10
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
We document that during the Global Recession, US monetary policy easings triggered the "exorbitant duty" of the United States, the issuer of the world's dominant currency, by causing a dollar appreciation and a transfer of wealth from the United States to the rest of the world. This dollar appreciation runs counter to the predictions of standard macroeconomic models and works through two channels: (i) a flight-to-safety effect which lowered the expected excess returns of holding safe US government debt relative to foreign debt and (ii) lowered expected future inflation in the United States relative to other countries. We show that the signaling channel of monetary policy, whereby US policy easings are perceived to signal weaker future growth, can reconcile the novel empirical findings that we document.
Subjects: 
exchange rates
currency risk
risk premia
monetary policy
forward guidance
Federal Reserve information
interest rates
Global Financial Crisis
JEL: 
E52
F31
G01
Document Type: 
Working Paper

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