IMF Working Papers

Demand for Safe Assets and Spillovers from the Global Dollar Cycle

By Cian Allen, Rudolfs Bems, Lukas Boer, Racha Moussa

April 4, 2025

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Format: Chicago

Cian Allen, Rudolfs Bems, Lukas Boer, and Racha Moussa. "Demand for Safe Assets and Spillovers from the Global Dollar Cycle", IMF Working Papers 2025, 065 (2025), accessed May 14, 2025, https://doi.org/10.5089/9798229007092.001

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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

US dollar appreciations can inflict sizable negative cross-border spillovers. We investigate such spillovers from flight-to-safety shocks and the accompanying “global dollar cycle”. Results show that negative real sector spillovers from US dollar appreciations fall disproportionately on emerging markets. In contrast, effects on advanced economies are small and short-lived. Emerging market commodity exporters historically experienced larger negative spillovers than commodity importers, reflecting a strong negative link between the US dollar and commodity prices. In terms of policies, more anchored inflation expectations can mitigate the initial negative spillovers while more flexible exchange rates can speed up the subsequent economic recovery.

Subject: Emerging and frontier financial markets, Exchange rate arrangements, Financial markets, Financial sector policy and analysis, Financial services, Foreign exchange, Interest rate parity, Negative spillovers, Spillovers

Keywords: Commodity exporter, Commodity Prices, Emerging and frontier financial markets, Emerging market commodity exporter, Exchange rate arrangements, Global, Global Financial Cycle, Index weight, Interest rate parity, International Spillovers, Invoicing share, Negative spillovers, Spillovers, UIP deviation, Uncovered Interest Parity, USD Index

Publication Details

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