Research / BFI Working PaperSep 07, 2021

The Flight to Safety and International Risk Sharing

We study a business cycle model of the international monetary system featuring a time-varying demand for safe dollar bonds, greater risk-bearing capacity in the U.S. than the rest of the world, and nominal rigidities. A flight to safety generates a dollar appreciation and decline in global output. Dollar bonds thus command a negative risk premium and the U.S. holds a levered portfolio of capital financed in dollars. We quantify the effects of safety shocks and heterogeneity in risk-bearing capacity for global macroeconomic volatility; U.S. external adjustment; and the international transmission of monetary and fiscal policies, including dollar swap lines.

More Research From These Scholars

BFI Working Paper Aug 31, 2022

Unemployment Insurance in Macroeconomic Stabilization

Rohan Kekre
Topics:  Employment & Wages
BFI Working Paper May 2, 2022

Monetary Policy, Redistribution, and Risk Premia

Rohan Kekre, Moritz Lenel
Topics:  Monetary Policy, Financial Markets
BFI Working Paper Feb 20, 2020

Optimal Currency Areas with Labor Market Frictions

Rohan Kekre
Topics:  Uncategorized