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Demand for Safe Assets and Spillovers from the Global Dollar Cycle

Author

Listed:
  • Mr. Cian Allen
  • Mr. Rudolfs Bems
  • Lukas Boer
  • Racha Moussa

Abstract

US dollar appreciations can inflict sizable negative cross-border spillovers. We investigate such spillovers from flight-to-safety shocks and the accompanying “global dollar cycle”. Results show that negative real sector spillovers from US dollar appreciations fall disproportionately on emerging markets. In contrast, effects on advanced economies are small and short-lived. Emerging market commodity exporters historically experienced larger negative spillovers than commodity importers, reflecting a strong negative link between the US dollar and commodity prices. In terms of policies, more anchored inflation expectations can mitigate the initial negative spillovers while more flexible exchange rates can speed up the subsequent economic recovery.

Suggested Citation

  • Mr. Cian Allen & Mr. Rudolfs Bems & Lukas Boer & Racha Moussa, 2025. "Demand for Safe Assets and Spillovers from the Global Dollar Cycle," IMF Working Papers 2025/065, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2025/065
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