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The Dollar, Bank Leverage, and Real Economic Activity: An Evolving Relationship

Author

Listed:
  • Burcu Erik
  • Marco J. Lombardi
  • Dubravko Mihaljek
  • Hyun Song Shin

Abstract

The interest in how financial conditions affect real economic activity has grown since the great financial crisis (GFC), not least because some of the mechanisms at play in the financial sector may have changed. We shed light on this issue by examining the empirical relationship between global Purchasing Managers' Indices, world trade, and indicators of global financial conditions, with a special focus on the broad dollar index. We show that the influence of the dollar on real economic activity and global trade seems to have increased since the GFC, while that of the VIX has decreased.

Suggested Citation

  • Burcu Erik & Marco J. Lombardi & Dubravko Mihaljek & Hyun Song Shin, 2020. "The Dollar, Bank Leverage, and Real Economic Activity: An Evolving Relationship," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 529-534, May.
  • Handle: RePEc:aea:apandp:v:110:y:2020:p:529-34
    Note: DOI: 10.1257/pandp.20201097
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    References listed on IDEAS

    as
    1. Valentina Bruno & Se-Jik Kim, 2018. "Exchange Rates and the Working Capital Channel of Trade Fluctuations," BIS Working Papers 694, Bank for International Settlements.
    2. Clark, Todd E. & McCracken, Michael W., 2012. "In-sample tests of predictive ability: A new approach," Journal of Econometrics, Elsevier, vol. 170(1), pages 1-14.
    3. Douglas W. Diamond & Yunzhi Hu & Raghuram G. Rajan, 2020. "The Spillovers from Easy Liquidity and the Implications for Multilateralism," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(1), pages 4-34, March.
    4. Valentina Bruno & Se-Jik Kim & Hyun Shin, 2018. "Exchange Rates and the Working Capital Channel of Trade Fluctuations," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 531-536, May.
    5. Silvia Miranda-Agrippino & Hélène Rey, 2020. "The Global Financial Cycle after Lehman," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 523-528, May.
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    Cited by:

    1. Stefan Avdjiev & Egemen Eren & Patrick McGuire, 2020. "Dollar funding costs during the Covid-19 crisis through the lens of the FX swap market," BIS Bulletins 1, Bank for International Settlements.

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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