The Dollar's Imperial Circle

While the dollar has been selling off quite meaningfully and the market continues to re-adjust post last weeks promising CPI data, I wanted to do a blog post on a paper that was recently presented on at the IMF research conference in Washington DC last week. In a pretty selfish plug, the paper was written by me and three co-authors from the NY Federal Reserve. The title of the paper is “The Dollar’s Imperial Circle.”

If you have been following my work for a while, this is a concept I have outlined in blog posts before. The primary message of this idea is that the dollar is not only a byproduct of global macroeconomic conditions but is also determinant variable in those conditions. This has been a primary input in my approach to markets and the global economy, namely the pro-cyclical nature of the USD.

Given that we have seen a big move in the dollar over the past two weeks and that this paper was presented by my co-author at the IMF research conference last week, I thought it would be a good time to go over the mechanics of this phenomena in a blog post. Before I start this recap of the paper, I want to thank my co-authors at the NY Fed for really doing a lot of the heavy lifting, especially on the econometric/model side. Gianluca Benigno, Ozge Akinci, and Serra Pelin are incredible researchers and economists and I am really grateful to have had the opportunity to work with them.