IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/17472.html

Pricing Risk Globally: Intermediary Constraints, the Dollar, and the Global Financial Cycle

Author

Listed:
  • Akinci, Ozge
  • Kalemli-Ozcan, Sebnem
  • Queralto, Albert

Abstract

We study how increased uncertainty about U.S. asset returns affects global asset prices and exchange rates in a two-country model with intermediary balance-sheet constraints. Empirically, uncertainty shocks widen global credit spreads, appreciate the dollar, and increase currency risk premia. In our model, higher uncertainty tightens intermediary constraints and lowers asset prices, reversing the counterfactual asset price increase in frictionless models. Because constraints make net worth especially valuable in bad times, risk premia respond strongly to uncertainty shocks. This interaction allows the model to match the credit spread, currency premium, and dollar responses in the data.

Suggested Citation

  • Akinci, Ozge & Kalemli-Ozcan, Sebnem & Queralto, Albert, 2022. "Pricing Risk Globally: Intermediary Constraints, the Dollar, and the Global Financial Cycle," CEPR Discussion Papers 17472, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:17472
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP17472
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:17472. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.