The Non-U.S. Bank Demand for U.S. Dollar Assets
IMF Working Papers, June 19, 2020
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- The Non-U.S. Bank Demand for U.S. Dollar Assets
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Bibliographic details
- Authors: Tobias Adrian, Peichu Xie
- Published: June 19, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513547732.001
Summary findings
- 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.
Methodology and evidence
- Instrumental variable strategy used to identify causality from the USD asset share to the USD exchange rate.
- Cross-sectional asset pricing tests employed to evaluate pricing significance for carry trade strategies.
- Forecasting evidence provided both in sample and out of sample, highlighting explanatory power for the dollar and implications for time varying risk premia.
Key statistics and publication metadata (as reported)
- Pages: 46
- Volume: 2020
- Issue: 101
- Series: Working Paper No. 2020/101
- DOI: https://doi.org/10.5089/9781513547732.001
- Stock No: WPIEA2020101
- ISBN: 9781513547732
- ISSN: 1018-5941
Subject areas and keywords (as reported)
- Subjects: Banking, Currencies, Econometric analysis, Estimation techniques, Exchange rate adjustments, Exchange rates, Financial statements, Foreign exchange, Money, Public financial management (PFM)
- Keywords: asset demand, asset share, Currencies, Estimation techniques, Exchange rate adjustments, Exchange Rate Disconnect, Exchange rates, Financial statements, Global, Intermediary Asset Pricing, math display, nominal exchange rate, Safe Asset Demand, Treasury premium, U.S. bank, U.S. dollar, USD asset demand, USD assets, WP
IMF Working Paper by Tobias Adrian and Peichu Xie, June 19, 2020.
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- Working Paper