Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/280780 
Year of Publication: 
2023
Series/Report no.: 
DIW Discussion Papers No. 2058
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We develop a two-country business-cycle model of the US and the rest of the world with dollar dominance in trade invoicing, in cross-border credit, and in safe assets. The interplay between these elements - dollar trinity - rationalizes salient features of the Global Financial Cycle in the data: When its tide subsides, the dollar appreciates, financial conditions tighten, the world business cycle slows down, and emerging-market central banks face a trade-off between mitigating the recession and dampening price pressures. We find the dollar is no sideshow in this, but central for the transmission of the Global Financial Cycle to the world economy.
Subjects: 
Dollar dominance
dominant currency paradigm
Bayesian proxy structural VAR model
convenience yield
JEL: 
F31
F42
F44
Document Type: 
Working Paper

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