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

Author

Listed:
  • Ozge Akinci
  • Ṣebnem Kalemli-Özcan
  • Albert Queralto

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

  • Ozge Akinci & Ṣebnem Kalemli-Özcan & Albert Queralto, 2022. "Pricing Risk Globally: Intermediary Constraints, the Dollar, and the Global Financial Cycle," NBER Working Papers 30026, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30026
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    Citations

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    Cited by:

    1. Rogers, John & Sun, Bo & Wu, Wenbin, 2025. "Drivers of the global financial cycle," Journal of International Economics, Elsevier, vol. 156(C).
    2. Albagli, Elias & Ceballos, Luis & Claro, Sebastian & Romero, Damian, 2024. "UIP deviations: Insights from event studies," Journal of International Economics, Elsevier, vol. 148(C).
    3. Martin Bodenstein & Pablo A. Cuba-Borda & Nils M. Gornemann & Ignacio Presno & Andrea Prestipino & Albert Queraltó & Andrea Raffo, 2023. "Global Flight to Safety, Business Cycles, and the Dollar," International Finance Discussion Papers 1381, Board of Governors of the Federal Reserve System (U.S.).
    4. Şebnem Kalemli-Özcan & Can Soylu & Muhammed A. Yıldırım, 2026. "Global Trade, Tariff Uncertainty, and the US Dollar," AEA Papers and Proceedings, American Economic Association, vol. 116, pages 47-52, May.
    5. Carlos Cañizares Martínez & Arne Gieseck, 2025. "The effects of macro uncertainty shocks in the euro area: a FAVAR approach," Empirical Economics, Springer, vol. 68(6), pages 2829-2872, June.
    6. Michael B. Devereux & Charles Engel & Steve Pak Yeung Wu, 2023. "Collateral Advantage: Exchange Rates, Capital Flows and Global Cycles," NBER Working Papers 31164, National Bureau of Economic Research, Inc.
    7. Huang, Yu-Fan & Liao, Wenting & Wang, Taining, 2024. "Does US financial uncertainty spill over through the (asymmetric) international credit channel? The role of market expectations," Journal of International Money and Finance, Elsevier, vol. 148(C).
    8. Hornstein, Abigail S. & Naknoi, Kanda, 2023. "FDI commitments increase when uncertainty is resolved: Evidence from Asia," Journal of Asian Economics, Elsevier, vol. 87(C).
    9. Avdjiev, Stefan & Gambacorta, Leonardo & Goldberg, Linda S. & Schiaffi, Stefano, 2026. "The risk sensitivity of global liquidity flows: Heterogeneity, evolution and drivers," Journal of International Money and Finance, Elsevier, vol. 161(C).
    10. Dong, Xiao & Yu, Mingzhe, 2024. "Time-varying effects of macro shocks on cross-border capital flows in China's bond market," International Review of Economics & Finance, Elsevier, vol. 96(PC).
    11. Caldara, Dario & Ferrante, Francesco & Iacoviello, Matteo & Prestipino, Andrea & Queralto, Albert, 2024. "The international spillovers of synchronous monetary tightening," Journal of Monetary Economics, Elsevier, vol. 141(C), pages 127-152.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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