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2021 Honors Thesis: Carly Diaz


Carly Diaz

Title of Thesis:

In USD We Trust: Is the Strength of the Safe-haven Effect on U.S. Dollars Dwindling?


Nelson LindKelli LanierJeff Rosensweig (Goizueta Business School)


I analyze the strength of the safe-haven effect on the U.S. dollar relative to three competing currencies over time. My empirical strategy conditions on high and low market volatility to differentiate between periods of economic crisis and relative stability. I answer the question of whether the strength of the safe-haven effect on U.S. dollars is changing over time, and if so, how. Related literature mainly considers the safe-haven effect as a property that is unchanging with time and uses decades old data to determine current currency behaviors. My results show that the strength of the safe-haven effect on U.S. dollars has been changing over time, weakening in the past decade relative to the Swiss franc and euro, and weakening over the past 20 years relative to the Japanese yen. Furthermore, the safe-haven effect of the U.S. dollar during the Covid-19 recession is found to be much weaker than during the Great Recession. I also briefly explore factors that could be leading to the fall in safe-haveness of the dollar, such as country-specific NFA and debt-to-GDP levels.

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