Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/307253 
Year of Publication: 
2024
Series/Report no.: 
DIW Discussion Papers No. 2100
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
Using a data-driven approach to identify structural vector autoregressive models, we examine key factors influencing the US dollar exchange rate across eight advanced economies from 1980 to 2022. We find that shocks to inflation expectations, which are closely tied to unfunded government transfer payments, have a pronounced effect on the US dollar's value. This underscores the fiscal dimension of exchange rates. External shocks, related to the convenience yield investors forgo to hold US dollar assets, have emerged over time as the most powerful driver of US dollar exchange rate fluctuations. These findings provide new insights into the complex interplay of monetary policy, fiscal dynamics, and global market forces in shaping US dollar exchange rates.
Subjects: 
exchange rates
convenience yield
inflation expectations
monetary policy
fiscal policy
unfunded government transfer payment
monetary-fiscal policy mix
JEL: 
E52
C32
E43
F31
G15
F41
Document Type: 
Working Paper

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