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I have read here and elsewhere that because foreigners are holding so many dollar denominated assets overseas, this represents a large stock of dollars kept out of domestic circulation, and that on the sale of part of these assets the dollars will come flooding home to the US, increasing the money supply and thus inflation.
I've also heard it put in terms of the dollar exchange rate being driven down by sales of these assets - and this will cause inflation in the US.
These seeem to be simplifications of an end result but
I'm trying to understand the mechanisms underlying them, and I'm looking for help.
At this point I'm trying to understand the role played by eurodollar deposits and what effect a liquidation of US assets by foreigners will have on M3.
(I'm drawing diagrams with liabilities being swapped between US Banks and Eurobanks, and also wondering about what happens if foreigners sell assets and keep eurodollars, as opposed to selling dollars ...)
I'd love to read something a bit more up to date than this: (PDF 630kb)
Does Eurodollar Borrowing Improve the Dollar's Exchange Value Fed Res. Bulletin Sept 1978
http://research.stlouisfed.org/publi...ar_Aug1979.pdf
Perhaps someone can point me straight to an article on this?
I've also heard it put in terms of the dollar exchange rate being driven down by sales of these assets - and this will cause inflation in the US.
These seeem to be simplifications of an end result but
I'm trying to understand the mechanisms underlying them, and I'm looking for help.
At this point I'm trying to understand the role played by eurodollar deposits and what effect a liquidation of US assets by foreigners will have on M3.
(I'm drawing diagrams with liabilities being swapped between US Banks and Eurobanks, and also wondering about what happens if foreigners sell assets and keep eurodollars, as opposed to selling dollars ...)
I'd love to read something a bit more up to date than this: (PDF 630kb)
Does Eurodollar Borrowing Improve the Dollar's Exchange Value Fed Res. Bulletin Sept 1978
http://research.stlouisfed.org/publi...ar_Aug1979.pdf
Perhaps someone can point me straight to an article on this?