Working Paper: NBER ID: w30558
Authors: Zhengyang Jiang; Robert J. Richmond; Tony Zhang
Abstract: We link the sustained appreciation of the U.S. dollar from 2011 to 2019 to international capital flows driven by primitive economic factors. We show that increases in foreign investors’ net savings, increases in U.S. monetary policy rates relative to the rest of the world, and shifts in investor demand for U.S. financial assets contributed approximately equally to the dollar’s appreciation. We then quantify the impact of potential future demand shifts for U.S. assets on the value of the dollar.
Keywords: dollar appreciation; capital flows; monetary policy; investor demand
JEL Codes: F31; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increases in global savings (F62) | dollar's appreciation (F31) |
| U.S. short-term interest rates increases (E43) | dollar's appreciation (F31) |
| shifts in investor demand towards U.S. financial assets (G15) | dollar's appreciation (F31) |
| foreign investors' net savings (F21) | demand for U.S. financial assets (G15) |
| U.S. monetary policy rates relative to global rates (E43) | dollar's exchange rate (F31) |
| changes in exogenous variables (F29) | equilibrium exchange rates (F31) |