US Wealth Shares, the Dollar and International Risk Sharing

I study the joint dynamics between the US wealth share, the dollar and the global economy. I uncover three novel stylised facts about these joint dynamics. Firstly, the US wealth share is countercyclical: it falls on impact but subsequently rises over the course of global recessions. Secondly these wealth share dynamics are driven by the relative outperformance of the US stock market vis-a ́-vie the rest of the world (ROW) during global bad times. Finally dollar strength is procyclical: it appreciates on impact but subsequently depreciates over the course of global recessions. These facts present a natural challenge to modern international macro-finance models that place the US and the dollar at the center of global fluctuations. I rationalise these joint dynamics using a simple two country recursive model of international portfolio choice