Seminario "Currency Dominance and the Hegemon Bonds Convenience Yield"
Jueves 18/6, 12h
Presentado por Emilio Espino
Paper Abstract
We develop a multicountry general-equilibrium model in which currency dominance and segmented asset-market participation jointly generate an endogenous convenience yield on hegemon bonds. The hegemon's currency functions as the vehicle currency for all cross-border transactions, while in each country only a fraction of households can rebalance portfolios each period. We characterize the xed-point condition determining the equilibrium share θ of face value that hegemon bonds deliver as current liquidity to inactive holders, making them a partial substitute for cash. Exorbitant privilege has two components: international seigniorage from foreign demand for the dominant currency and a liquidity premium on hegemon debt. The convenience yield rises in adverse hegemon states, generating ight-to-safety dynamics and countercyclical variation in borrowing costs. Ongoing work studies how the hegemon's scal policy interacts with its bond yields and the quantitative relevance of time consistency in optimal monetary policy.
Emilio Espino
Ph.D. in Economics, Cornell University. Associate Professor, UTDT.
Professor Espino’s research focuses on macroeconomic theory and dynamic contracts. His work has been published in journals such as Journal of Economic Theory and Quantitative Economics (Econometric Society). He is member of the Executive Board of the Latin American Econometric Society (LAMES) and Associate Editor of the Journal Macroeconomic Dynamics.
We develop a multicountry general-equilibrium model in which currency dominance and segmented asset-market participation jointly generate an endogenous convenience yield on hegemon bonds. The hegemon's currency functions as the vehicle currency for all cross-border transactions, while in each country only a fraction of households can rebalance portfolios each period. We characterize the xed-point condition determining the equilibrium share θ of face value that hegemon bonds deliver as current liquidity to inactive holders, making them a partial substitute for cash. Exorbitant privilege has two components: international seigniorage from foreign demand for the dominant currency and a liquidity premium on hegemon debt. The convenience yield rises in adverse hegemon states, generating ight-to-safety dynamics and countercyclical variation in borrowing costs. Ongoing work studies how the hegemon's scal policy interacts with its bond yields and the quantitative relevance of time consistency in optimal monetary policy.
Emilio Espino
Ph.D. in Economics, Cornell University. Associate Professor, UTDT.
Professor Espino’s research focuses on macroeconomic theory and dynamic contracts. His work has been published in journals such as Journal of Economic Theory and Quantitative Economics (Econometric Society). He is member of the Executive Board of the Latin American Econometric Society (LAMES) and Associate Editor of the Journal Macroeconomic Dynamics.