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Dollar Trinity and the Global Financial Cycle

Author

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  • Müller, Gernot
  • Georgiadis, Georgios
  • Schumann, Ben
Abstract
We develop a two-country business-cycle model of the US and the rest of the world with dollar dominance in trade invoicing, in cross-border credit, and in safe assets. The interplay between these elements---dollar trinity---rationalizes salient features of the Global Financial Cycle in the data: When its tide subsides, the dollar appreciates, financial conditions tighten, the world business cycle slows down, and emerging-market central banks face a trade-off between mitigating the recession and dampening price pressures. We find the dollar is no sideshow in this, but central for the transmission of the Global Financial Cycle to the world economy.

Suggested Citation

  • Müller, Gernot & Georgiadis, Georgios & Schumann, Ben, 2023. "Dollar Trinity and the Global Financial Cycle," CEPR Discussion Papers 18427, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18427
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    Cited by:

    1. Georgiadis, Georgios & Müller, Gernot J. & Schumann, Ben, 2024. "Global risk and the dollar," Journal of Monetary Economics, Elsevier, vol. 144(C).
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    3. Georgiadis, Georgios & Jarociński, Marek, 2023. "Global spillovers from multi-dimensional US monetary policy," Working Paper Series 2881, European Central Bank.

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    More about this item

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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