The Non-U.S. Bank Demand for U.S. Dollar Assets

Author/Editor:

Tobias Adrian ; Peichu Xie

Publication Date:

June 19, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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. 20/101

Subject:

English

Publication Date:

June 19, 2020

ISBN/ISSN:

9781513547732/1018-5941

Stock No:

WPIEA2020101

Format:

Paper

Pages:

46

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