The negative effect on emerging markets
Now, there is less external capital chasing returns in Europe and the emerging economies, and some that was there has already flowed back home. So economic and financial factors can be expected to continue to fuel the appreciation of the US dollar. The only way to ease that upward pressure, and to mitigate spillovers, is with effective policy responses.
Managing the Risks of a Rising Dollar
By: Mohamed A. El-Erian – Allianz
…and the Fed seems not to be particularly concerned
Jerome Powell, in a recent speech he gave in Zurich, reassured his audience that the normalization of monetary policies in the advanced countries should prove to be manageable for the emerging markets. But with emerging market corporate debt to GDP levels at an all-time high could it be that Powell is overly sanguine in his assessment?
Jerome Powell and the emerging markets
By: Desmond Lachman – American Enterprise Institute
The effect on global trade
[…] using newly constructed trade price and volume indices for over 2500 country pairs, we document that the relevant predictor for bilateral trade prices and volumes is not the bilateral exchange rate but the dollar exchange rate, even where the U.S. is on neither side of the trade transaction. A 1{5e7f07e14add20b2e04f4edb85a447d3cd8121fc27b809645e9fed603c22cc5c} U.S. dollar appreciation against all other currencies in the world predicts a 0.6–0.8{5e7f07e14add20b2e04f4edb85a447d3cd8121fc27b809645e9fed603c22cc5c} decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle.
Global Trade and the Dollar
Authors: Emine Boz, Gita Gopinath, Mikkel Plagborg-Møller
From: IMF, Harvard University, Princeton University
