IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/34332.html
   My bibliography  Save this paper

Trade War and the Dollar Anchor

Author

Listed:
  • Tarek Alexander Hassan
  • Thomas M. Mertens
  • Jingye Wang
  • Tony Zhang

Abstract

We develop a general-equilibrium model in which the safety of a country's currency and the choice of its exchange-rate regime arise endogenously. Calibrated to pre-2025 data, the model replicates the U.S. dollar’s safety premium, low Treasury yields, and its status as the world's anchor currency. Introducing a trade war that isolates U.S. goods markets from the world erodes the U.S. dollar's safety premium, raises U.S. interest rates, and lowers the world market value of U.S. firms. For sufficiently high tariffs, small economies optimally re-peg to the euro, precipitating a phase shift to a euro-centric international monetary system and a global welfare loss. The analysis implies that persistent trade wars may threaten the financial privileges the United States derives from the dollar’s international role.

Suggested Citation

  • Tarek Alexander Hassan & Thomas M. Mertens & Jingye Wang & Tony Zhang, 2025. "Trade War and the Dollar Anchor," NBER Working Papers 34332, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34332
    Note: AP EFG IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w34332.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    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:nbr:nberwo:34332. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.