The Non-U.S. Bank Demand for U.S. Dollar Assets
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Summary:
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.
Series:
Working Paper No. 2020/101
Subject:
Banking Currencies Econometric analysis Estimation techniques Exchange rate adjustments Exchange rates Financial statements Foreign exchange Money Public financial management (PFM)
English
Publication Date:
June 19, 2020
ISBN/ISSN:
9781513547732/1018-5941
Stock No:
WPIEA2020101
Pages:
46
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