IMF Working Papers

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

ByTobias Adrian, Peichu Xie

June 19, 2020

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Format: Chicago

Tobias Adrian, and Peichu Xie. "The Non-U.S. Bank Demand for U.S. Dollar Assets", IMF Working Papers 2020, 101 (2020), accessed 12/5/2025, https://doi.org/10.5089/9781513547732.001

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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

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.

Subject: 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

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