Jiang, Zhengyang; Krishnamurthy, Arvind; Lustig, Hanno; … - National Bureau of Economic Research - 2024
We introduce safe asset demand for dollar-denominated bonds into a tractable incomplete-market model of exchange rates …. The convenience yield on dollar bonds enters as a stochastic wedge in the Euler equations for exchange rate determination … identifies a novel safe-asset-demand channel by which the Fed's QE impacts the dollar and long-term U.S. Treasury bond yields …