Exorbitant Privilege: A Safe-Asset View / Zhengyang Jiang.

Format:

Book

Author/Creator:

Jiang, Zhengyang.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w32454.

NBER working paper series no. w32454

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2024.

Summary:

I propose a dynamic model of the reserve currency paradigm that centers on the liquidity demand for safe assets. In global recessions, the demand for the U.S. safe bond increases and raises its convenience yield, giving rise to a stronger dollar and a countercyclical seigniorage revenue. The seigniorage revenue raises the U.S. wealth and consumption shares in recessions, despite the U.S. suffering portfolio losses from its external positions. This asset demand channel also connects exchange rate dynamics to the marginal utility over bond holding, which provides new perspectives on exchange rate disconnect and on the relationship between exchange rates and capital flows. Under this safe-asset view, exorbitant privilege does not require exorbitant duty.

Notes:

Print version record

May 2024.