In USD we trust: Is the strength of the safe-haven effect on US dollars dwindling? Público

Abstract

I analyze the strength of the safe-haven effect on the US dollar relative to 3 competing currencies over time. My empirical strategy conditions on high and low market volatility to differentiate between periods of economic crisis and relative stability. I answer the question of whether the strength of the safe-haven effect on US dollars is changing over time, and if so, how. Related literature mainly considers the safe-haven effect as a property that is unchanging with time, and uses decades old data to determine current currency behaviors. My results show that the strength of the safe-haven effect on US dollars has been changing over time, weakening in the past decade relative to the Swiss franc and euro, and weakening over the past 20 years relative to the Japanese yen. Furthermore, the safe-haven effect of the US dollar during the Covid-19 recession is found to be much weaker than during the Great Recession. I also briefly explore factors that could be leading to the fall in safe-haveness of the dollar, such as country-specific NFA and debt-to-GDP levels.

Table of Contents

1 Introduction 1

2 Related Literature 3

3 Empirical Strategy 5

4 Data 6

5 Results 8

5.1 Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

5.2 Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

5.3 Yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5.4 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

6 Conclusion 25

7 Appendix

About this Honors Thesis

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School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Economics, General Economics, Finance
Palabra Clave	franc safe-haven exchange-rate foreign exchange yen currency euro currencies safehaven dollar economics recession
Committee Chair / Thesis Advisor	Nelson Lind, Emory University
Committee Members	Kelli Lanier, Emory University Jeff Rosensweig, Emory University

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