Topic: Exorbitant Privilege: A Safe-Asset View

Speaker: Zhengyang Jiang, Associate Professor, Kellogg School of Management, Northwestern University

Time: 10:00am-11:30am, December 11

Location: 4-101

Abstract:

I propose a model of the reserve currency paradigm that centers on liquidity demand for safe assets. In global recessions, the demand for U.S. safe assets increases and raises their convenience yields, giving rise to stronger dollar and countercyclical seigniorage revenues. The seigniorage revenues raise the U.S. wealth and consumption shares in recessions, despite the U.S. suffering portfolio losses from external positions. This asset demand channel also connects exchange rates to bond holdings, which provides new perspectives on exchange rate disconnect and the exchange rate-capital flow relationship. Under this safe-asset view, exorbitant privilege does not require exorbitant duty.

Speaker Biography:

Zhengyang’s primary field of research is international finance and macroeconomics. He studies exchange rates, capital flows, the valuation of public debt, and the special status of the U.S. and the dollar in the international monetary system. He is also interested in the cognitive process underlying expectation formation and financial decision-making.

He received his doctor of philosophy in finance from Stanford Graduate School of Business, and a bachelor degree in math and business economics from California Institute of Technology.