Koijen and Yogo, 2020
This, of course, has implications for asset markets. If the US dollar were to lose its status, the country’s long-term bond yields would rise 2.15 percentage points, according to Koijen and Yogo. They trace this to the effects of investor demand from offshore financial centers (responsible for 0.53 percentage points), Pacific investors (0.52 percentage points), European investors (0.51 percentage points), and foreign exchange reserves (0.48 percentage points). Also, stock prices would fall without the special demand for US equities. Thereafter, expected returns for US stocks would be 1.7 percentage points higher, they write, driven most strongly by European investors.
- Zhengyang Jiang, Arvind Krishnamurthy, and Hanno Lustig, “Foreign Safe Asset Demand and the Dollar Exchange Rate,” Journal of Finance, February 2021.
- Ralph S. J. Koijen and Motohiro Yogo, “Exchange Rates and Asset Prices in a Global Demand System,” Working paper, June 2020.
More from Chicago Booth Review
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.