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Dash for Dollars

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  • Cesa-Bianchi, Ambrogio
  • Czech, Robert
  • Eguren Martin, Fernando

Abstract

We document a `dash for dollars' in corporate bond markets during the Covid-19 turmoil period. Within-firm variation of corporate bond spreads and transaction volumes reveals that US dollar-denominated bonds experienced larger spread increases and selling pressures relative to non-dollar bonds. To interpret these findings, we quantify the importance of two different hypotheses linked to the dollar's hegemony in the international financial system, namely its superior liquidity and its dominance as a funding currency. Our results highlight the importance of the funding hypothesis, which suggests that investors sold their dollar-denominated assets to meet immediate dollar obligations.

Suggested Citation

  • Cesa-Bianchi, Ambrogio & Czech, Robert & Eguren Martin, Fernando, 2021. "Dash for Dollars," CEPR Discussion Papers 16415, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16415
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    Cited by:

    1. Javier Bianchi & Saki Bigio & Charles Engel, 2021. "Scrambling for Dollars: International Liquidity, Banks and Exchange Rates," NBER Working Papers 29457, National Bureau of Economic Research, Inc.
    2. Simon Gilchrist & Bin Wei & Vivian Z. Yue & Egon Zakrajšek, 2020. "The Fed Takes On Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF," FRB Atlanta Working Paper 2020-18, Federal Reserve Bank of Atlanta.

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    More about this item

    Keywords

    Heterogeneity; Credit spreads; Liquidity; Dash-for-cash; Us dollar; Covid-19; Event-study; Identification;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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